Britain’s referendum on 23rd June, popularly known as ‘Brexit’, will have profound impact on the UK. The uncertainty created by the nature of such a referendum will affect the UK economy for years to come until a comprehensive deal with the 27 EU leaders is signed.
This can’t even take place until Article 50 of the Treaty of European Union (TEU) is invoked, an issue alone which has created infamous controversy in the recent Gina Miller vs. Secretary of State for Exiting the European Union (David Davis) law case. The constitutional crisis created by the UK High Court’s ruling that only Parliament is legally allowed to pass Article 50 is just one of numerous impacts that should be considered. The referendum question was intentionally worded by David Cameron’s government in the event of a Leave victory to reduce chances of Britain abandoning the single market. Brexit never explicitly set out the nature of the UK’s exit from the EU, meaning that despite its claims, the post-Brexit government has a mandate to extract the UK from the EU, but not necessarily to remove it from the European single market.
The economic implications must be mentioned first and foremost; the EU is primarily an economic union after all. The impact of Brexit on the UK economy was felt immediately after the Leave campaign’s victory. The pound fell to a thirty-year low against the dollar and euro, a level not seen since 1985, at one-point trading at £1 – $1.22. This marks a decrease of 15% compared to pre-referendum value. Whilst a weaker pound is good for British exporters, foreign tourists and foreign investors, it is bad news for British imports to the UK. Considering Britain had a trade deficit of £4.7 billion pounds in July 2016, this must be assessed as being considerably negative for the UK economy, in the short-term at least. Basic imported goods like petrol, food and electrical goods have seen price increases following the devaluation of the pound. This sustained weak pound has been the result of months of uncertainty following the Brexit vote, and will continue to fluctuate, especially regarding any UK government reference to the European single market.
The UK exiting both the single market and the EU currency union would be economically disastrous for Britain, with the prospect of years of negotiating for a trade deal with the EU. The Comprehensive Economic and Trade Agreement (CETA) between Canada and the EU, a model for Brexit politicians, took seven years to negotiate. It was almost blocked by a single Belgian region, Wallonia, which could prelude what awaits Britain if it leaves the single market. The EU has no intention of letting the UK off lightly when it comes to its EU exit deal, wanting to set an example to other states hoping to leave.
Possible major political impacts include the prospect of a second Scottish bid for independence, Northern Ireland’s UK status and immigration. 62% of the Scottish and 56% of the Northern Irish electorate backed Remain whilst England and Wales supported Leave. This had led to Scottish First Minister Nicola Sturgeon calling for a second independence referendum in the future and threatening to block the Brexit vote if Scotland was removed from the EU against its wishes. The crisis deepened further when it became apparent that Northern Ireland being forcibly removed from the EU would be contrary to the landmark 1998 Good Friday Agreement that largely brought the Troubles to an end. Brexit sees the prospect of a closed border between Northern and Republican Ireland, which has worrying ramifications for the peace process.
Another major issue is that of immigration, which has been recognised as one of the key reasons behind the Leave victory. EU freedom of movement rules means any citizen of an EU member state has a right to live and work in the UK and vice versa. High Eastern European immigration to poor, working-class areas of England like Lincolnshire and the impact of Conservative austerity on areas like Tyne & Wear helped explain anger towards the EU. This is despite London, with by far the highest level of foreign-born residents in the UK, voting 60-40% to Remain. For many working-class Britons EU immigration has come to represent competition for jobs and a strain on housing, healthcare and schools. Many political analysts see the Brexit result as a vote against the establishment, globalisation and immigration. Economically deprived areas of the UK like south Wales and north-east England saw it as a protest against austerity and swung the vote in Leave’s favour.
The potential impacts of Brexit are hard to ascertain, especially with it being unclear whether the UK will leave the single market. The ongoing political instability in Westminster only heightens the uncertainty. As always, only time will tell.