t first, the break-up date was set for March 29, 2019. And then April 12. And finally, in the last two months of Theresa May’s term as Prime Minister, the deadline for the UK’s break from the European Union was set to October 31, 2019.
Though the UK’s impending departure from the European Union has been delayed several times, Brexit remains a salient issue. During the recent EU Parliament elections, 32% of the British electorate voted in favor of Nigel Farage’s new Brexit Party, taking the most votes as the country’s two dominant parties suffered crippling losses. However, though British voters still support their country’s looming exit from the European Union, the projected economic impact of the split casts a dark financial forecast for Britain over the next few years.
If the UK goes through with the Brexit process in October, the economic effects may be catastrophic. The worst effects would spur from a no-deal Brexit, in which the UK leaves the EU without any agreements regarding the future relationship. The Bank of England estimates made ahead of the April 12 deadline predicted a 5% economic contraction in light of a no-deal split. Precursors to this worst-case scenario would include border delays and a sharp drop in foreign economic confidence. Other side effects of the split could include stalls in manufacturing production and damaged trade deals.
However, as Business Insider reports, the ultimate result of the Brexit decision is beside the point. When the British referendum decision to leave the European Union was first made back in June 2016, the economic impact of the decision was felt soon after. The lack of market confidence that resulted from the original referendum decision soon contributed to stagnant economic growth. Before the referendum, the UK was the G7’s leader in economic growth. Two years after the infamous election, the country is running at the back of the pack.
However, the original referendum decision produced no immediate changes in “legal status, tariffs, or regulations.” Yet, the mere announcement of the UK’s decision to split from the European Union caused economic growth to slump. And growth hasn’t been the only metric of economic health indicating a lackluster economy in the aftermath of the Brexit decision. British currency took a hit as the value of the pound declined in the wake of the referendum, causing inflation to rise. And at the end of the first quarter in 2019, it was estimated that the Brexit vote had already cost the UK 2.1% of GDP. In 2019, whether or not the UK actually goes through with the Brexit decision is irrelevant. The fracas surrounding the impending split has created enough market uncertainty to cast significant damages on the British economy.
The lack of market confidence that resulted from the original referendum decision soon contributed to stagnant economic growth. Before the referendum, the UK was the G7’s leader in economic growth. Two years after the infamous election, the country is running at the back of the pack.
Uncertainty has been the name of the game in British markets since the 2016 referendum. British financial firms, accounting for 6.5% of the UK’s GDP, had already started taking precautionary measures in light of the potential April 12 split. Additionally, just weeks after the fateful EU elections in which the British electorate again voted in favor of a split from the European Union, commotion over the Brexit crisis triggered a contraction in manufacturing and construction, indicating further stagnation in the British economy. Market analysis following this contraction indicates that the British economy is operating at one of its weakest points since 2012. Ultimately, the uncertainty over the Brexit decision is likely to halt the country’s growth for the rest of the year.
Additionally, the effects of the Brexit decision have not just been felt in the UK. Market uncertainty has spread to the global economy, spelling more bad news for British companies. Foreign investment dropped in the first two years following the referendum decision, and foreign companies have started moving their operations out of the UK. For example, several international automobile manufacturers have made plans to either leave the UK or slow their British operations this year. Honda and Ford have both announced that they are closing UK plants this year, and Nissan has stopped manufacturing certain models at its Sunderland plant. Further, as of March 2019, the British trade deficit has also increased. The increase in imports could be evidence of a global economic slowdown. After all, Brexit gives investors another reason to doubt an anxious global economy already preoccupied with the trade disputes between the U.S. and China.
The Brexit question will be treated with fresh perspective after the British Parliament elects a new prime minister following Theresa May’s recent resignation. Some front-runners for the position, such as foreign Boris Johnson, promise a no-deal split by October 31 regardless of Britain’s ability to negotiate a withdrawal agreement with the EU. Though such a split might spell disaster for the British economy, the ultimate result of the Brexit decision is growing less and less important to an economy that has already been wracked by three years of market uncertainty. Whether or not the UK leaves the European Union according to its third scheduled deadline is irrelevant. The market uncertainty resulting from the Brexit referendum has apparently created a self-fulfilling prophecy.