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Brexit: Politics and Economics Upended

Tamara Holub, Librarian, Business Department,

On June 23, 2016, citizens in the UK and Gibraltar voted on the Brexit referendum to determine whether or not the UK should remain in the European Union (EU).  The Leave camp won by almost 52% which immediately sent shockwaves throughout the UK and the world. Politically, the UK went into chaos. Prime Minister David Cameron resigned on June 24. Labor Leader Jeremy Corbyn suffered a vote a no confidence within his party.  Nigel Farage, leader of the UK Independence Party and one of the main promoters of the Leave campaign, made a sudden exit from politics and resigned from his party leadership.  Boris Johnson, a British politician and the most recognizable face of the Leave campaign, was widely thought to have succeeded David Cameron.  However, infighting from former political allies made his run impossible.  Teresa May was appointed the new Prime Minister in mid-July.

The day after the results, the economic impact of Brexit was immediately noticeable as the British currency, known as the pound sterling or pound, dropped significantly to a low not seen in over 30 years.  British banks took heavy losses in the first day after the vote.  Stock markets took a nose dive in Europe, the United States, and Asia.  Although stock markets around the world lost almost $2 trillion in value on June 24, markets began to improve in the days after the initial shock.  On June 24, Moody’s downgraded the UK’s sovereign credit rating from stable to negative.  Recently, both the International Monetary Fund (IMF) and Moody’s have expressed concerns about the UK’s growth prospects.

In the few weeks since the Brexit vote, the stock market has recuperated since the initial losses of late June, but the pound has fallen 11%-12% against the dollar.  The FTSE 250 Index, which are the stocks of large companies on the London Stock Exchange was down after Brexit, but is steadily making a comeback.  Although there are some indicators that the economy has slowed in July, the larger picture of how Brexit has impacted the UK’s economy is not yet known. Official data of economic indicators such as the Gross Domestic Product (GDP) will not be available until the fall of 2016.  Additionally, the full economic impact of Brexit remains to be seen, especially since the UK has not yet triggered Article 50 of the Libson Treaty which deals with the exit of a member country from the EU. 

References and for further reading:

Allen, Katie & Monaghan, Angela.  Brexit Fallout – the Economic Impact in Six Key Charts.  The Guardian, July 8, 2016: 
https://www.theguardian.com/business/2016/jul/08/brexit-fallout-the-economic-impact-in-six-key-charts

Barker, Alex.  Article 50: The Brexit Divorce Paper. Financial Times, July 20, 2016:
https://next.ft.com/content/2f64f006-4dbd-11e6-88c5-db83e98a590a

Belam, Martin. One Month On, What has been the Impact of the Brexit Vote So Far?  The Guardian, July 22, 2016:
http://www.theguardian.com/politics/2016/jul/22/one-month-on-what-is-the-impact-of-the-brexit-vote-so-far

The Economist:
http://www.economist.com/Brexit

The Economic Impact of Brexit: Straws in the Wind. The Economist, July 16, 2016:
http://www.economist.com/news/britain/21702225-forget-financial-markets-evidence-mounting-real-economy-suffering

Giles, Chris; Tetlow, Gemma & Cadman, Emily.  Brexit Barometer: Economic Mood Darkens. Financial Times, July 21, 2016:
http://www.ft.com/cms/s/2/b95af98a-4e5e-11e6-88c5-db83e98a590a.html#axzz4FGMgkfYj

Global Credit Research.  Moody’s Changes Outlook on UK Sovereign Rating to Negative from Stable, Affirms Aa1 Rating.  Moody’s Investor Service, June 24, 2016:
https://www.moodys.com/research/Moodys-changes-outlook-on-UK-sovereign-rating-to-negative-from--PR_350566

Lash, Herbert & Krudy, Edward.  World Stocks Tumble as Britain Votes for EU Exit. Reuters, July 24, 2016:
http://www.reuters.com/article/us-global-markets-idUSKCN0Z92MZ

Lawder, David. Brexit Uncertainty Prompts IMF to Cut Global Growth Forecasts Again. Reuters, July 19, 2016:
http://www.reuters.com/article/us-imf-growth-forecasts-idUSKCN0ZZ1M5

Ward, Jill.  Brexit Wreaks Havoc on UK Economy as Recession Risk Increases.  Bloomberg, July 22, 2016:
http://www.bloomberg.com/news/articles/2016-07-22/brexit-vote-wreaks-havoc-on-u-k-economy-flash-estimates-show

Whittall, Christopher.  Stock Rebound after Brexit Votes Takes Investors Aback.  The Wall Street Journal, July 25, 2016:
http://www.wsj.com/articles/stock-rebound-after-brexit-vote-takes-investors-aback-1469480052

 


 

 

 

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