What is Brexit and why Brexit happened
Combining the words Britain and exit, Brexit is the catchy nickname given to the United Kingdom’s departure from the European Union (EU).
In June 2016, the United Kingdom (UK) held a referendum on whether to remain a member of the EU, the political and economic union made up of 28 (including the UK) European countries (known as member states). The result was close, with 51.89 percent of voters choosing to leave the EU, and 48.11 percent preferring to remain in the union. Hence, the country was divided almost in half — with leavers/Brexiters on one side and remainers/Europhiles on the other.
The date for the UK’s departure from the EU was originally set for March 29, 2019, but amidst chaotic attempts to approve the formal withdrawal agreement (which set out the terms of the UK’s departure from the EU) in the UK Parliament, the date was pushed back to April 12, 2019. It was then delayed again until October 31, 2019.
Why did the UK population vote to leave the EU, albeit narrowly? The answer to that is long and complicated. Partly, it was the result of general unease at the free movement of people (a key principle of the EU), which saw large numbers of European migrants choosing to live and work in the UK. Even though workers from the EU were proven to be net contributors to the UK’s public purse (meaning they pay more into the system in taxes than they take out in terms of healthcare, education and so on), many felt voters were sending a clear signal that they wanted to see less immigration.
And partly, it was about a desire to “take back control” from the EU. All EU members are bound by EU regulations (even though, as an EU member, the UK had a big say in what those regulations are), which led to many voters feeling like the EU was the one calling the shots.
But these are just broad generalizations, and different people voted the way they did for a whole host of reasons. Ultimately, the referendum result showed that, rightly or wrongly, a small majority of voters felt that the downsides of EU membership (such as free movement from EU countries to the UK and financial contributions to the EU annual budget) outweighed the positives (such as greater integration, ease of trading across borders, and, don’t forget, the right for Britons to live and work in other EU countries).
Of course, the referendum result was just the start of the Brexit process. The UK and EU have, since then, been engaged in lengthy negotiations on how the exit will be managed, and what the future relationship between both parties will look like. In some areas, such as trade, these negotiations could go on for years.
Is Brexit good or bad for the economy?
The answer to this depends on where you are in the world, how far into the future you want to look, how the Brexit process plays out, and how optimistic you are about the United Kingdom’s trading prospects after Brexit. It’s a bit more complicated than a simple list of Brexit pros and cons.
Here are some key points for the economy of the United Kingdom (UK):
- According to the UK government’s own estimates, if the UK exits the European Union (EU) under the terms of Prime Minster Theresa May’s withdrawal agreement, then the UK economy could be up to 3.9 percent smaller after 15 years than it would’ve been had the UK stayed in the EU.
- If the UK exits the EU without agreeing on a withdrawal agreement (a so-called “no-deal Brexit” or “hard Brexit”), then the impact will be greater. Under a no-deal scenario, the UK’s economy could be up to 9.3 percent smaller.
- General uncertainty around Brexit has also had a negative impact on the UK economy — there’s evidence of falling foreign investment and UK companies delaying investment or expansion plans amidst uncertainty. Some companies have made plans to pull out of the UK entirely, and move their operations to Europe. In fact, continuing Brexit uncertainty slowed the UK’s economic growth to 1.3 percent in 2018 (compared to 1.7 percent in 2017).
- The value of the British pound is around 14 percent lower than it was before the Brexit referendum.
That said, many in favor of Brexit feel that the UK’s post-Brexit prospects are bright, arguing that greater freedom to negotiate its own trade deals around the world (as opposed to negotiating as part of the EU trading bloc) would make the UK more prosperous in the longer term.
It’s not just the UK that’s feeling the effects of Brexit uncertainty. The value of the euro also fell in the wake of the referendum, and the UK is an important trading partner for many European countries — leading to concerns that trade barriers (such as tariffs) would hit EU–UK trade hard. This would impact some European countries more than others, depending on how much they trade with the UK.
And what about the United States? Well, the weaker pound and euro certainty strengthened the value of the dollar, but that’s not necessarily a good thing for the American stock market because it makes American shares more expensive (and, therefore, potentially less attractive) to overseas investors. The weaker pound and euro also makes American exports into those markets more expensive — the UK in particular is a key export market for American businesses.
