How a ‘hard Brexit’ might affect the UK
Currencies Direct October 26th 2016 - 3 minute read
In June, the UK voted to leave the European Union (EU). This was a shock to a number of analysts both within the UK and outside it. There were so many unknowns with leaving the EU that many thought it would never happen.
However, it did and now there is a great deal to negotiate and manage before the official exit happens.
UK prime minister Theresa May has given a deadline of March 2017 to trigger Article 50 – the official process for leaving the Union. It should take roughly two years to complete the process. However, there has been a great deal of talk from various quarters – both UK and EU politicians – about the possibility of a so-called ‘hard Brexit’.
A hard Brexit would see the UK leave the EU without negotiating any trade deals and no access to the single market.
Here, Currencies Direct looks at what might be affected in the event of a hard Brexit.
The British currency went into shock when the decision of the Brexit vote was announced, and it is still struggling to come out of it.
In the period since the vote, the pound has reached lows not seen for 30 years. It is subdued against major competitors the euro and US dollar and has even reached parity at some exchange bureaux.
Any potential gains in value the pound may have experienced were wiped away when the mention of a hard Brexit came up in political spheres. When the concept was given credence by Brexit secretary David Davis – who promised to give the UK absolute control over immigration numbers – the pound suffered.
At the recent Conservative party conference, Mr Davis said: “Let us be clear, we will control our own borders and we will bring the numbers down.”
Where there is no freedom of movement, the EU has asserted there will be no trade deals. Gaining access to the European single market would mean that the UK would most likely have to allow movement of people.
When Mr Davis gave his speech to the conference, the pound dropped to five-year lows against the euro falling by 2.1% in a single week. When this is the result after talk of a hard Brexit, it could very well be worse after the event actually happens.
Although the currency itself has fallen significantly, the economy has not struggled too much.
The economy has generally fared better than the currency, with employment figures rising steadily.
According to the Office for National Statistics (ONS), unemployment in the UK was at 4.9% for the three months to August, which is significant as it takes into account the period after the Brexit vote.
However, a hard Brexit could result in a change to these figures. With no trade deals in place, exporters may end up seeing a fall in foreign orders.
Carolyn Fairbairn, head of the Confederation of British Industry, said that leaving the EU with nothing negotiated would add up “to a very negative environment for business”.
The UK government itself also thinks there will be a considerable fall in GDP. Leaked government papers have revealed that a hard Brexit would cost the country up to £66 billion a year in lost tax revenue.
According to the government documents: “The net impact on public sector receipts – assuming no contributions to the EU and current receipts from the EU are replicated in full – would be a loss of between £38 billion and £66 billion per year after 15 years, driven by the smaller size of the economy.”
The EU itself could see a negative impact as a result of a hard Brexit. If there have been no trade deals agreed, then there could be issues with exporting to the UK.
British champagne maker Laurie Kempster, of Champagne PIAFF, said that shipping from France to the UK is easier “while we’re still in the EU”. With the UK being the biggest market for champagne exports – 34,153,662 bottles were sent to the UK last year – this is just one industry that might see a fall in profits after a hard Brexit.
With a lack of trade deals comes a lack of opportunity for many firms.
Whether the UK does actually leave the EU without access to the single market remains to be seen. However, if you intend to transfer money abroad before Brexit happens, Currencies Direct can help you do it securely and quickly.