As the campaign for Brexit, the exit of the United Kingdom from the European Union, played out, one message was repeated by the anti-Brexiters; potential economic doom While only time will tell, there have been some immediate effects of Britain’s decision to leave the European Union on the 23rd of June last year. The pound dropped 10% overnight, after the vote, and the UK’s equivalent of the Dow Jones Industrial Average, the FTSE 100 (an index of the 100 most traded stocks in the London Stock Exchange) dropped 3.5%.
While the depreciation of the pound might mean Britons paying more for their weekly groceries, the depreciation has also made British exports more competitive with the rest of the world, and tourism in the United Kingdom cheaper with visits already up 4%. Americans can buy more with their dollars in London than anytime since the great recession.
Consequently, more Britons will spend their holidays at home and other Europeans might join them, notwithstanding tighter visa restrictions, as the United Kingdom moves away from the band of nations that allowed free-movement once you were in Europe.
Meanwhile, Britain, the nation that was home to the industrial revolution, may reclaim a portion of its manufacturing base. Given its historical and special relationship with the United States, exemplified by Prime Minister Theresa May’s visit within days of President Trump’s inauguration, there is potential for a new and separate economic partnership with the United States that can replace the seemingly inevitable decline in European trade. Certainly, free trade with the United States - the most dynamic major economy in the world - offers great prospects.
The United Kingdom, however, faces less favorable trade prospects with other allies. So far, the United States is one of the few nations that will begin moving towards new trade agreements with the United Kingdom. Meanwhile, 50 former territories that make up the Commonwealth (countries that used to be a part of the English empire, many of which still acknowledge Queen Elizabeth II as their ceremonial head of state), have been more reticent towards engaging in new agreements with England. With a GDP of $14.8 trillion, the Commonwealth includes a broad and diverse mix of countries, including developed markets like Canada and Australia, to those still developing such as India and Pakistan. Therefore, while the more developed countries might embrace new trade agreements, the potential demand for British exports, mainly services and expensive machinery, is limited to those markets.
Notwithstanding these economic opportunities (most of which will manifest themselves in the middle to long term) the British economy will suffer a painful disconnection from Europe. There were certainly benefits of being part of the largest economic bloc in the world with 22.8% of world GDP. The EU accounts for 44% of British exports and 52% of its imports.
Despite its slow long term growth (averaging about 1% per year since 2010), Europe remains a top-tier global economic pole along with the United States and North-East Asia (China, South Korea and Japan). How Britain navigates and balances these three regions will define its short-to mid-term future. Britain is well-positioned to harness the rapid growth of developing nations across Africa and Asia, in part thanks to its institutional advantages, such as the English language and historical respect around the world, both of which will remain unaffected by the departure from the EU. However, London, with proximity and dominance as the second global financial and investment hub to New York City, might suffer a small bit, as other European cities might emerge as the hub of trans-Atlantic business.
As Prime Minister May has noted, Britain cannot content itself to ride the wave of growth elsewhere; it must drive that growth towards Britain through further economic reforms and tax incentives.
Although not considered a Thatcherite, May has pointed to the superior performance of the economy prior to their membership in the European Union, as a result the policies of former Prime Minister Margaret Thatcher, who promoted free markets and fiscal austerity. With control of the House of Commons, May is already moving towards these Thatcher-esque changes.
Besides fiscal responsibility, Britain is also desiring for a better social understanding. Britons yearn for an answer to the questions of, “What is Britishness?” Clearly, Britain is not truly European - but is it really foreign to the continent where Wellington dulled with Napoleon? Where Churchill clashed with Hitler? No, of course not. Britain is trying to answer this question in a way that balances different opinions but rejects extremes: the island nation will never be a core European nation, regardless of geography.
Even so, Britain is still striving to maintain strong diplomatic and military links with Mainland Europe. They are however, trying to weigh the maintenance of these ties with reforms to immigration and migration laws. At present there are 3 million EU citizens living in the UK and approximately 900,000 British citizens living in the EU. One of the benefits of the EU’s common market policy is a free movement of people between the 28 member states. This was not the case when the UK joined the EU in 1973, as only similar cultured western European countries could travel freely, but free movement has come to the forefront as an issue in the UK in the mid 2000s. Following the the admittance of many eastern European countries into the EU, suddenly, millions of more people could come to the UK. And they did, with almost 600,000 Poles and Latvians alone coming between 2004 and 2006.
On March 29th of this year, Theresa May, triggered Article 50, of the Lisbon Treaty, setting the deadline for the United Kingdom’s departure as March 29th, 2019. The article itself is a relatively short five paragraphs detailing the negotiation procedures, for any nation wishing to withdraw from the European Union. It has never been triggered before, and the finality in the triggering of the Article lies in the fact that it cannot be reversed without a unanimous vote from all member nations. Two teams of negotiators have been created, one representing the United Kingdom and one the European Union. It now lies with them and the leaders of the UK and the EU to begin the negotiations for Britain’s departure.