Brexit Explained: 9 Ways Britain Leaving EU Impacts The Rest Of Us

Posted on June 27, 2016 in GlobeScope

By Aashay Tripathi:

The British have shocked the financial, political and business establishment of the world by voting to leave (52%) the European Union in the important referendum of June 23, 2016. Briefly analysing the votes in the referendum, we see that while England and Wales opted to leave the EU, Scotland, Northern Ireland, and the city of London were strongly in favor of the Great Britain remaining a part of the EU. Looking at the vote split (52 to 48), it can’t be said that either side won decisively. However, since the Britons have spoken, this democratic decision would have a huge impact on Britain, the EU and the world as a whole.

The immediate effect can be seen in the drastic fall of the pound. It was at its lowest in 30 years, post the decision of the voting. Around £120 billion of value had been lost from the FTSE 100 index in the space of 10 minutes of the morning after. FTSE 250 showed a drastic drop as well, however, the recovery was not much relative to FTSE 100. Japan’s Nikkei 255 tumbled by 7.9% while Mumbai’s Sensex dropped by 3.6%. With one of the most important nations deciding to divorce from the 28 nation bloc, the looming uncertainty is prompting investors to take their money out of the UK and put them into safe assets like gold. This has pushed the gold prices by about 8.1%.

TOPSHOT - A demonstrator holds a placard during a protest against the outcome of the UK's June 23 referendum on the European Union (EU), in central London on June 25, 2016. The result of Britain's June 23 referendum vote to leave the European Union (EU) has pitted parents against children, cities against rural areas, north against south and university graduates against those with fewer qualifications. London, Scotland and Northern Ireland voted to remain in the EU but Wales and large swathes of England, particularly former industrial hubs in the north with many disaffected workers, backed a Brexit. / AFP / JUSTIN TALLIS        (Photo credit should read JUSTIN TALLIS/AFP/Getty Images)
Source: Justin Tallis/Getty Images)

In addition to the above immediate effects, some other issues might warrant our attention as well.

• Depending on the trade negotiations the UK has with the EU, firms will have to rethink their strategy. A third of the Indian investment in the UK is in IT and telecom sector. With Britain’s exit, a requirement for separate headquarters for Europe and Britain might crop up. Hence, if these have to navigate with the other firms to the continent, the Indian investment would be diverted to the EU. However, with Britain freed, of strict EU regulations, one can only hope that it will be easier for India to engage in business the fifth largest economy in the world.

• With the reactionary fall in the pound (at a 30 year low), the Indian investors stand to gain in the short run as they can acquire property in the UK at a cheaper rate.

• India is a great investment destination from the emerging markets perspective. With the trade norms being dictated according to its own needs, UK is likely to invest more in India.

• Since one of the major reasons behind the exit was to control the immigration and have a tighter border control, more than anything else, skilled migration to Britain would take a hit. This will affect every aspect of Britain’s functioning – from academia to industries. Additionally, free movement is going to become a major issue in Europe after the exit of UK.

• Brexit proves that the forces of nationalism and sub-nationalism do not die out just because of the creation of free trading unions and common markets. Economic gains do not always trump social and cultural concerns. Trade does not erase xenophobia and bigotry, which lie just below the surface.

• Britain will probably spend another year or more trying to negotiate the exit. Like the immediate effects show, the resultant uncertainty is likely to damage growth, dent the pound sterling and slow down investment decisions in Britain. Taking an example of the companies, The Tata Group, which owns the Jaguar Land Rover (JLR) and Tata Steel (former Corus Steel), will be affected by higher tariffs imposed by the EU against British imports.

brexit leave
Source: Christopher Furlong/Getty Images)

• The unravelling of the EU market means uncertainty, having an impact on the exports from all over the world. Studies extrapolate that the Brexit would reduce the British imports by 25% in the next two years. The volatility of the currency, both Pound and Euro, will have a negative impact on the exporters by making their products more competitive in the world market. However, it has been analysed that this effect would be short-lived for India’s trade with the UK and EU.

• The most worrying issue is that this exit might prompt other nations to go ahead with shifting the power back to the national governments in areas like immigration, while maintaining the trading union.

• Backed by about 62% of Scotland voting to stay in the EU, there is a looming possibility of a second independence referendum.

For the moment, it looks unlikely that the EU will disintegrate with Britain’s exit but it will certainly not be the same anymore. The EU will have a tough fight to keep its relevance at world forums.

The EU is changing; it will rest on Brussels, the headquarters of the European Union, on whether that change is for the better.