In the wake of Brexit, economic uncertainties abound while political lines seem to be getting drawn.
In the immediate aftermath of the British vote to leave the EU, the pound plunged in value, the markets went into a tizzy, David Cameron had to resign as the PM and protests over the verdict became a regular phenomenon. After this rough start however, new economic data on the UK points to some normalization, raising questions as to whether Brexit was after all, a non-event. Britain’s unemployment has fallen steadily even after the vote (at 4.9%- the lowest rate since 2005) and economic growth, while still below 1%, remains steady quelling fears of an immediate recession. The fallen pound is seen to be the reason behind this, as consumer spending has gone up. Stock markets also have gone back to pre-vote levels for the moment. However, the key question of the prospect for British investment in commerce is still out there, indicating the turbulence that lies ahead. A weaker pound is not enough to improve business confidence and revive areas of investment.
It is here that the political battles ahead become significant. After the new British PM Theresa May’s firm declaration to lead Britain through the formal withdrawal process, the terms between EU and Britain on trade, services, labour movements and several other areas of co-operation will have to be redrawn. The triggering of Article 50 in order to start those negotiations itself is in question as Theresa May has stated that the said article will not be triggered until the UK’s negotiating position becomes clear. This in turn may not happen until elections in Germany get over and a new government comes to power by the end of 2017. Moreover, any deal will have to pass through ratification by 30 parliaments, not all of which are on friendly terms with the UK. Experts are thus predicting a decade long process for the negotiations to untangle, putting long-term investment planning at a risk. Financial services will face the brunt of this uncertainty as many of the biggest investment firms operate in EU from the City of London.
It is still not clear to what extent the UK and the EU will be able to cushion the blow from Brexit. The BCC’s (British Chamber of Commerce) call for “stability, clarity and action” will have to be taken very seriously if the situation is to be handled well, without putting all the nations through any more recessionary bouts.