The Brexit & Our Economy by Mickael Marsali

With the much anticipated June 23rd referendum fast approaching, voters will soon decide if the Britain will, in fact, leave the European Union. To the surprise of some, the polls are showing nearly an even split amongst eligible voters. Britons starkly disagree as to the Brexit’s potential geopolitical, economic, and social impact. Its economic consequences, however, seem to sit at the heart of this discord and is the subject of impassioned rhetoric from both sides. Unsurprisingly, the majority of Britons simply want to pursue the option that would leave themselves, and the nation, better off financially.

While the long-term economic impacts of the Brexit are in dispute, it is nearly impossible to argue against the immediate economic losses that would occur as a result of leaving the EU. John Greenwood, who serves as a Senior Economist at Invesco Perpetual, notes that the negotiation period with EU officials would last a minimum of two full years, and many experts believe this time period could be closer to a decade.  The UK would be forced to establish new trade agreements not only with the European Union but all states Britain trades with under EU membership. The Bank of England has publicly warned that the Brexit is the biggest risk to the nation’s economic well-being.

Although more controversial, the majority of economists have concluded that Britain leaving the European Union will negatively impact the UK economy in the long-run. A recently released study from the Centre for European Reform highlights the benefits of EU membership, especially as it relates to trade gains. The study found that British trade with the European Union has been more than 50% higher than it would be as a non-member nation.

This trade loss would be partially offset by the nearly £9 billion Britain gains by eliminating the yearly contribution to the EU budget. However, most economists agree, to the dismay of Brexiters, that leaving would severely hurt FDI (foreign direct investment). Greenwood notes that the European Union has served as the UK’s largest source of foreign direct investment over the last five years. The economist warns the Brexit would make the financial services sector especially vulnerable.

Greenwood also expresses concern over the UK’s sizeable account deficit, which is equal to 7% of the GDP.  He predicts that, if the Brexit were to come to fruition, the sterling would continue its depreciation.