Is Brexit still desirable?
We may have agreed to depart the European Union and the Single European Market, but are we aware of the effects this can potentially pose for the UK economy?
The European Union is a collection of 27 European nations that cooperate together on economic and political issues. It has operated a Single European Market since 1993, enabling free trade and movement of individuals between member states. Concerns regarding a British exit ('Brexit') from this union mounted until a formal national referendum was held on the 23rd June 2016, where 51.9% of the population voted to leave. Theresa May's "Brexit means Brexit" message solidified the unexpected and shocking reality that Britain were to leave the union, and a two year period of slow departure from the EU was agreed.
The Brexit vote drastically affected the UK economy. Since the election, the pound slumped to a three decade low against the US dollar amid concerns regarding the long-term UK prospects outside the European Union. This depreciation in the pound increased the prices of imports to the UK, causing inflation to soar to its current 2.7%, almost exceeding the Bank of England’s target of 2% +/- 1% and whilst the economy is still expanding, UK’s growth has slowed so far in 2017.
However, UK exports have reportedly increased following the weaker pound, with the hope that the diminishing consumer expenditure in the economy can be offset by a stronger trade performance. But the latest statistics have illustrated that export volumes fell 0.1% in April while import volumes dropped 5.1%, narrowing the deficit on Britain’s goods trade to £10.38bn from £12.05bn in March, better than forecasts for a £12bn trade gap.
Personally, I believe Brexit would prove problematic for the UK economy, as illustrated by Moody’s downgrading of the UK to an Aa2 rating from an Aa1 on the 23rd September, showing how potential investment into the UK is likely to fall due to the economic uncertainty created from leaving the European Union. The loss of passporting rights would also devastate the City of London, with an estimated 5,500 UK companies relying on passporting rights and trade with EU member states, with combined revenue of £9 billion. That is potentially why Theresa May called for a two year transition period after we have left the EU in 2019 in her speech in Florence on 22nd September, whereby payments into the EU budget, free movement of people and the jurisdiction of the European Court of Justice would stay in place, limiting the effects to businesses.
I think this call for a ‘smooth Brexit’ would eradicate significant threats to business performance whilst also meeting the demands of the UK population by continuing the process of departing the European Union.