Market Next


June 28
09:42 2016

The U.K joined the European Common Market in 1973.  In 1992, the Maastricht Treaty formally created the EU.  The treaty has given special permission that it would not adopt the Euro as their currency.  The British public’s perception of the benefits of the U.K’s EU membership has always been mixed.  According to the study conducted by the National Institute of Economic and Social Research, an exit from EU would permanently reduce GDP growth of United Kingdom by 2.25% due to lower foreign direct investments.  Another study conducted by the London School of Economics, UK, suggested that the country could suffer a drop in income anywhere between 6.3% to 9.5%; similar to the global financial crisis which happened in 2008-09.

Brexit is likely to affect the ties between UK and Scotland, and also affect the sentiments between UK and Northern Ireland, where the peace process over two decades has depended on the fact that both UK and Ireland are members of EU.

Brexit further can weaken Pound and one can expect further worsening problems of migration.  Britain’s exit from EU kept the Pound weak and it dropped to the lowest since 1985.   Above all, more serious problems after the Brexit will be the loss of military power and increased Islamist terrorism. On the contrary European Union may pay high price with respect to its security. The world’s top car producers like Rolls-Royce and the German multinational BMW have already written warning letters to its employees that a Brexit could cost them their jobs. Many top fund managers are also has given warnings to their employees ahead of the Brexit.

Free trade between EU partners is very important for international business houses like BMW and Rolls-Royce. These companies export motor cars throughout EU and imports significant number of parts throughout the region.  Many business houses like BMW and Rolls-Royce may reassess their investment and some small companies are likely to take their companies out of the UK.

The supporters of the Brexit argue that the UK would get a boost from re-focusing its exports on faster growing countries like US, Italy, Spain, Switzerland, China etc.   Trade with emerging economies will reduce regulatory hurdles which could provide an overwhelmingly positive outlook for an independent Britain.  British exit from the 28 nation EU might save the UK taxpayer billions and will reduce economic burden.  On the other hand the rest of 27 EU members may face deep economic uncertainty and cost millions of jobs.

Some economists argue that trade costs would rise after Brexit and UK would have less bargaining power for trade agreements than it does as part of a bigger entity, the EU.  After Brexit analyst’s forecasts for more exits from EU, the next candidate can be Netherlands.

After Brexit gold moved above $1350 per troy ounce, investors bought the yellow metal for safe heaven bets.  Japanese Yen appreciated and Indian rupee made a low below 68 against US dollar.  Companies which are taken loan in Pounds will make quick bucks and on the flip side investments from UK to other countries including India will be expensive.

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