Financial Implications for United Kingdom Leaving the European Union (Essay Sample)

FINANCIAL IMPLICATIONS FOR UNITED KINGDOM LEAVING EUROPEAN UNION
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Introduction
The United Kingdom leaving the European Union, also known as Brexit, stands for "Britain Exit". The United Kingdom (UK) held a referendum to determine whether or not it should leave the European Union (EU). The leave vote won by 51.89 %, and on March 29, 2017, the UK began leaving the EU (CFI, 2021). The implications of this decision are numerous and will impact many areas, including finance, trade, labor laws, immigration, and more. The paper explores the financial implications of Brexit.
Discussion
The Brexit process is expected to be lengthy and complicated, likely leading to volatility in foreign exchange rates, equity prices and political instability. GDP growth in the UK is forecasted to drop by up to 10%, and the unemployment rate could increase by up to 3%. On a positive note, the post-Brexit UK will have more control over its trade deals with countries outside Europe and more freedom over immigration policy (The Week UK, 2022). With new trading agreements, it will not be subject to specific EU regulations. There are also fewer restrictions on the labour market, allowing companies to hire workers from anywhere in the world.
In addition, Britain can become an attractive destination for inward investment by global firms seeking access to the EU single market without being burdened by regulation. It has been estimated that leaving the EU will create $5 trillion in lost trade opportunities within the next decade. Furthermore, Eurozone nations will need to cut interest rates further or risk recession due to a slowing economy. If there is no trade deal between Britain and the EU after Brexit, UK citizens will lose their right to live and work freely within the bloc. Moreover, British universities may be excluded from European research funding programmes such as Horizon 2020. Likewise, the government will no longer be able to provide loans to fund infrastructure projects in other EU member states through programmes like ERDF (European Regional Development Fund). Instead, they will have to apply directly to the EU. The value of the sterling is predicted to fall when compared with the US dollar and Euro, which could lead to inflationary pressures in price levels - food prices are anticipated to rise by 5% (Pettinger, 2022).
Higher import costs and inflationary pressures on household incomes mean consumers should expect lower disposable income levels. Also, exporters and importers would face higher costs because they must transact in another currency, while cross-border transactions would also incur currency conversion charges (Freeman et al., 2022). Exchange rate fluctuations and increased transaction costs would cause business profits to decline. At the same time, some sectors are poised to benefit from the weaker pound, such as those that produce goods using imported raw materials where input prices fell relative to output prices. For example, the sterling's devaluation has boosted sales of car exports. Sterling's weakness makes domestically produced goods cheaper for overseas buyers but makes imports more expensive and thus boosts demand for domestically produced products at home. As the pound falls, the Bank of England is also expected to raise interest rates, making mortgages and other borrowings more expensive. This would help support prices and limit the effects of the sterling's devaluation. Finally, the UK would also lose its power to vote on EU legislation and its laws due to Brexit (Europarl, 2019). However, it will still be part of NATO and retain influence in various international organizations.
The EU is by far the largest trade partner for the UK. Nearly half of all UK exports go to the EU, and almost 40% of the UK's imports come from European countries (Policy Trade, 2022). The EU is also the UK's biggest investor, with EU countries investing more than £1.2 billion in Britain every week. Britain's membership in the EU gives it unrestricted access to the European Single Market, which allows for free trade of goods and services across borders within the EU. The loss of this access will affect several sectors, including finance, automotive and agriculture. The City of London is the EU's most important financial centre, with 50% of the EU's banking assets and 75% of foreign exchange turnover. The UK also has a significant presence in other sectors such as aerospace, pharmaceuticals and chemicals. Therefore, Brexit will have important implications for the financial sector and trade relationships.
The market value of shares on the FTSE 100 plummeted by 8% on June 24 2016, as Prime Minister David Cameron announced that Britain would be leaving the European Union (The Guardian, 2016). A poll conducted after the referendum showed that two-thirds of people who voted in favour of Brexit