On June 23 Britain shocked the world by voting to leave the EU in a referendum. While London, Northern Ireland and Scotland voted solidly in favour of remaining, they were outweighed by the majority of English and Welsh voters.
In the immediate aftermath the pound and British stocks fell, Prime Minister David Cameron resigned, and uncertainty spread around the world.
The uncertainty remains as the full impact of Brexit will only be clear months or years from now, but already there are some mixed signals.
On August 4th, exactly 6 weeks after the referendum, Mark Carney (the Canadian born Governor of the Bank of England) made the decision to cut interest rates from 0.5% to 0.25% – the first cut in about 7 years. Carney’s decision brought rates to an all time record low, but the Bank of England could drop rates even further if the British economy struggles.
The Bank also announced it planned on purchasing £10bn worth of corporate bonds and £60bn of UK government bonds. Although not explicitly described as such, the move is in effect a round of quantitative easing (QE) aimed at increasing liquidity in the financial markets in the hopes of spurring investment, encouraging lending, and boosting the economy.
In the same announcement the Bank made the single largest cut in growth forecast since 1992, revising its 2017 growth forecast down from 2.3% to just 0.8%. The Bank also said that in three years the British economy will be 2.5% smaller than it would have been had the UK voted to remain.
Manufacturing fell to 48.2 on the Markit/CIPS Manufacturing Purchasing Manager’s Index. Anything above 50 represents growth, while anything below 50 indicates declines.
House prices in the UK fell 1% in july compared to June, but remain 8.4% higher than the same time last year. The Bank of England predicts that the uncertainty will decrease the volume of properties bought and sold and could depress prices further – but not significantly. Foxtons, a London real estate agent suffered a 42% fall in profits over the last 6 months, while construction companies are also wary of future uncertainty.
The FTSE 100 has not only recovered from an initial Brexit induced drop, but on Friday hit a new high for 2016, reaching its highest point since July 21, 2015. The Bank of England’s decisive action played a major part in boosting investor confidence.
The British pound has been on a roller coaster over the last two months, but the ride started even before the referendum results were in. Polling leading up to the referendum – and even reports shortly after the polls opened – suggested that Britain would vote to remain in the EU. This drove the value of the pound up from 1.4663 on June 21st to 1.4938 on June 23 – the day of the vote. Optimism quickly turned to uncertainty as the polls proved to be wrong and it became clear that the UK was heading for a Brexit.
The pound crashed from 1.4938 to 1.3670 the day following the vote (June 24). It continued to plummet over the coming days to 1.2908 on July 6 – below 1.30 for the first time in 31 years. It continued to slide the following day closing at 1.2899 on July 7th. On July 11th Theresa May became Prime Minister causing the pound to rise from 1.2939 on July 10th to 1.3251 on July 12th. On July 13th the controversial Boris Johnson was appointed to the powerful position of Foreign Secretary and the pound took as slight dip back down to 1.3121 before rebounding on July 14th to 1.3342 . After a couple weeks of hovering just above 1.30, the pound reached 1.3344 on August 2nd – the highest point since the June 7th bottom. Since May’s appointment the currency has bounced between 1.30 and 1.334. On August 5th (last Friday) the pound was sitting at 1.3071.
HSBC is predicting that the pound will be sitting around US$1.18 and US$1.20 by the end of the year, while JP Morgan is more optimistic with a prediction of US$1.31.
With the usually strong British pound at its lowest point since 1985, one industry has already seen a positive effect. Tourism is booming as people flock to take advantage of the lower than average exchange rate. Although the result of the referendum was a major blow, the pound has been on a slide since 2015, which resulted in an 10% increase in the number of American tourists visiting the UK compared to 2014. The extra tourism brought in an estimated £3.3bn in revenue.
It is too early to tell what the full impact of Brexit will be on the tourism industry but according to Expedia, the company saw a 30% increase in search volume for flights from the US to UK. British Airways saw an increase of 137% in the 5 days following Brexit, and a 97% increase over the following two weeks.
Conversely the fall in the pound is also encouraging Britons to curb their travel ambitions and opt for a ‘staycation’ rather than heading to the continent or further afield. According to Airbnb, bookings for British accommodations by Britons increased by 122% in the weeks following Brexit.
An increase in foreign and domestic tourism could prove to be a boon to the British tourism industry.
Since the referendum a number of high profile trade deals have been mentioned in the press. Post-Brexit Britain, it seems, will be pursuing trade deals with China, India, Canada and Australia. Without the much maligned bureaucracy of Brussels, many are hoping that Britain will be able to cut deal quickly with other countries. Unfortunately, formal negotiations cannot begin until after the UK leaves the EU officially in a process that will likely take more than 2 years.
Britain, of course, will also have to negotiate a trade agreement with the EU. Optimists point to the possibility of a deal similar to that of Norway but that would require Britain to continue to allow the free movement and right to work of EU citizens – the very issue that drove many people to vote to leave the EU. Free movement aside, the EU is notoriously difficult to strike agreements with. Canada has been pursuing the CETA (Comprehensive Economic and Trade Agreement) with the EU for the better part of a decade but it will not be finalised until 2017 at the earliest – although CETA deal itself could be in jeopardy thanks to Brexit.
So far no trade negotiations have taken place, despite ambitious talk in the press.
Hiring levels dropped to the lowest since the recession in 2009. Lloyds, a major bank in the UK, cut 3,000 jobs and doubled the branches that it plans on closing – but insists both of these decisions were made prior to the vote. Renault-Nissan had warned that its British investment plans will be delayed until after the Brexit vote. Renault-Nissan currently employs 7,000 people in Britain and is the largest employer in Sunderland a small city in the North East near Newcastle which voted decisively to leave the EU.
In positive news Pharmaceutical giant GlaxoSmithKline announced it would invest £275m in the UK, and fast food giant McDonald’s will create 5, 000 new jobs.
Prime Minister David Cameron promised to step down by October at the latest following the Brexit vote. Many commentators expected Boris Johnson to make a run for the leadership of the Conservative party which would make him Prime Minister. Instead the less charismatic Michael Gove – arguably the second most high-profile ‘Brexiter’ after Johnson – revoked his endorsement of Johnson just hours before the deadline. To solidify his political betrayal Gove said “Boris cannot provide the leadership or build the team for the task ahead” and announced his intentions to run for the leadership.
Few had expected Gove would take a run at becoming Prime Minister, and perhaps he should have listened. Along with Gove, Theresa May and Andrea Leadsom competed for the party leadership. Gove was soundly defeated in the first round of voting, and the ultra conservative Leadsom withdrew after it was clear she could not win (but not before accusing May of not valuing the country’s future due to her lack of children). May had largely stayed out of the Brexit debate but did lend her support to the ‘Remain’ camp in a single speech. She became Prime Minister on the 11th of July, just 18 days after the Brexit vote.
May was the second longest serving Home Secretary in the last 100 years. She has been firm in saying “Brexit means Brexit” and refusing to entertain the notion of a second referendum, but has also said that negotiations to trigger Article 50 (required for a member state to leave the EU) will not begin earlier than the end of 2016. May is seen as a calming force relative to the likes of Johnson, with a mix of traditional “one-nation Tory” and liberal policy preferences. She supports gay marriage, but also less immigration. She wants to promote gender balanced boardrooms, but also had long called for Britain to withdraw from European convention on human rights (a position she reversed immediately after becoming PM).
Theresa May appointed Boris Johnson as Foreign Secretary, a move which has proved controversial due to Johnson’s long history of outspoken comments (and borderline belligerent nature). In one of his first press conferences Johnson was accused by an American journalist of having “an unusually long history of wild exaggerations and, frankly, outright lies”. Snubbing Johnson could have resulted in serious internal party conflict down the line due to his popularity and larger than life persona – which may explain his appointment to the 3rd highest position in the country (after Prime Minister and Chancellor of the Exchequer).
May also appointed Philip Hammond to Chancellor of the Exchequer – the second highest position in the UK. Hammond was a key ally of May. Amber Rudd, a bright star under Cameron, supported May’s leadership and was rewarded by being named Home Secretary (May’s old job). Michael Fallon remained Secretary of State for Defence. Although Fallon campaigned to remain he supported May’s leadership and is considered highly competent. David Davis became Secretary for State for European Union Relations, or as some now refer to it: the Minister for Brexit. Davis had his own failed leadership bid in the mid 2000s, but became a popular pro-Brexit backbench MP and supported May’s leadership.
Other Post Brexit news:
- According to the Department of Foreign Affairs in the Republic of Ireland, since Brexit the number of applications for Irish passports coming from the UK has increased by 73%.
- According to a survey conducted by the Guardian, there has been a backlash against UK researchers who have lost funding or their jobs. Since the vote there has been “a substantial increase in definitive evidence that EU projects are reluctant to be in collaboration with UK partners, and that potentially all new funding opportunities from Horizon 2020 are closing” and “UK applicants were being dropped from EU bids almost straight after the vote”
- Goldman Sachs may reorganise its London arm which currently employs 6,000 people.
- British farmers are preparing to cope with the loss of EU funding. Last year about 55% of farmers’ income came in the form of subsidies from the EU which totaled £2.1bn in direct funding and £600m in rural development payments from the EU’s Common Agricultural Policy.
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