What does Brexit mean from a financial point of view?
As the world has been witnessing the second rise for interest rates in a decade, we can see that the world economies is taking a major turn. More and more experts are starting to predict a financial crisis being closer than we would even think, but where does Brexit fit into all this you may ask?
Power of the coin
The British pound or Sterling has been a strong currency for many centuries. As the world has been in a process of unifying in the last two centuries, currency exchange has become a more familiar term. The way in which a country would purchase their currency back from other nations would be trough gold. However, this is only one factor which may affect the power of the certain currency.
Since Brexit has been announce the pound has dropped to $1.36. At this present time, we are looking at the pound being worth $1.31. You may think that those few cents are just pocket change but when exchanging millions of banknotes every day that pocket change will turn your capital into a fortune.
As I live in the United Kingdom I can give you an honest opinion on how things are looking at the moment in time, at least from my perspective. The prices have gone up, there is no doubt about that. For citizens that are finding themselves in a worst financial position it may be more significant. However, if I wore to compare some of my last year’s bank statements to the present ones I would also say that there is a significant change. Of course that for some products prices might have even lowered, even if we are looking at a niche market but in most cases prices will vary with the demand.
I am starting to have this mind-set where I see the British government thinking that they can resist as well as support their nation with no imports from other markets. Maybe 60 years ago yes, but in today’s society and with the low industrial production Britain has at disposal and very high demands compared to the rest of the world it is a near impossible mission. If Brexit will actually go through the British government will have to enter a market in which they will have to pay tax for every produce that they import. As they are part of the European Union at the moment they do not have to pay taxes when importing from Europe.
Perception of Brexit
We need to get something straight as many people are confused, Brexit did not happen as there is no need for a visa to get into the United Kingdom. Britain is still utilizing the European market free of any intended fees in the Brexit agreement and most of the EU nationals that have been making a living in the UK for less than 5 years have not been asked for a specific qualification to work in the UK indefinite as stated in the Brexit agreement.
As well as plenty more reasons but those were the most oppressed upon the announcement of Brexit.
However, some people (mostly British citizens) are already getting into the mentally as if Brexit did happen and as if they have been affected in some sort of way (mentally, financially or physically). Note that this is not only contagious for others but also a claim to the mess that Brexit has developed. Even the politicians themselves are trying to find a good reason as to why are they going through this because at the end of the day there are not advantages for Britain, at least from my point of view.
How is this perception affecting the market?
The most problematic issue that has been created by this wrong perception and the unintentional wrong mentality is the change in spending behaviour. The market is not directly impacted by Brexit yet as it has not happened. What actually has affected the market and the value of the pound is the false believe of Brexit happening that has made people change their spending behaviour as well as habits. Optimizing their spending as if Brexit has happened. Now I am not either talking about the majority nor the minority but the people that do believe that Brexit did happen as well as people pro Brexit.
It is not only the perception that people have but many generalize on a point that will affect Britain because of Brexit but there are so many. People generalize that most of the pro Brexit voters are just confused and do not entirely understand what they have actually voted for.
Many industries that support the financial economy of Britain will be affected and the people that work in those industries wake up knowing that there is a higher risk of them losing their job and as we are talking about industries that potential leads to workers that are specialized in a certain industry, therefore a high rise in unemployment which translates to a higher rise in people that will require financial support and benefits from the government. To conclude this point, a raise in our taxes.
People should think of an organizational schematic when taking major decisions. Consult with all the parties and stakeholders before doing something drastic. What surprised me from the primary research that I have done is that a lot of people care more about democracy rather than their financial status. Now do not get me wrong if some are happy doing so I have no problem but I think we should first meet our psychological needs (according to Maslow’s Hierarchy of Needs) as in having a shelter that we can call home as well as food and water. Let’s be realistic for a second please and admit that it is hard out there. Now whilst I am writing this I have in mind the middle class population.
Overall British economy
Since the 2009 financial crisis that has hit Britain for various reasons the country had a good and stable growth back to a good economy. What is interesting enough is that at the start of 2015 the economy started to fall again in a slow process showing that something was coming up. Since the referendum in 2016 the British economy has taken a massive hit of 24 billion pounds and this loss keeps growing day by day.
Taking a look at the G7 economies it is not a good story to be told. As UK is playing a big role in the Group of Seven it is important that they stay at the top of their game. 2017 figures show that the UK has overestimated their GDP with 1.2% which now represents a downfall of 1.2% therefore being below the average of G7 which is an expected 2.3% for the year of 2017.
The economy is better seen in statistics and figures that is true but you can also take a good look around you when you go shopping. The economy, as mentioned before can be seen from the consumer spending behaviour as well as the budget that the consumers have to spend. Brexit is also having a major impact in the trading industry. I have spoken with many foreign exchange traders and I can say that many chose to stay away from doing any exchanges or trades with the pound. Not only the high fluctuation but also the uncertainty as well as the value dropping makes the risk not worth it. If the prices of shares within the UK go down they are quick to blame Brexit.
If UK was to adopt the Norway relationship with the EU and stay as a member of the single market than we will only face a 2% national income decrees which comes down to 40 billion pounds. If the government decides a free trade agreement or sorts with the EU than we will face a loss of 5% national income which translates to 85 billion pounds. In one of the worst scenarios where Britain decides to trade with EU under WTO (World Trade Organization) rules that will mean a major loss of 160 billion pounds, 8% of the national income. We can only imagine how the HMRC (HM Revenue and Customs) will inflict major tax increase on pretty much anything that is possible.
My theory is that the EU will not play as the UK will want but actually the other way around. I do also believe that the EU has every right to set most of the rules and regulations as UK has chosen to leave and because of the way that the European Bureau has been treated by the UK after the referendum announcements. Please take note that it is only a theory as well as part of my own opinion. Many people are tired of the mess that has been created and are avoiding to talk upon this subject as they have not only lost hope in their government for their possible irrational decisions but also not understanding what they have to gain if Brexit were to happen.
We are living a monumental moment in our lives as we have no certainty of what can happen next if we are out of the European Union. I think this is the problem as people do not think of the long term repercussions that the country may suffer. One more point to think upon would be, if Britain does it will other countries consider to exit the European Union? Our life is an uncertain mystery.
