Batz 1

Kevin Batz

Mr. Phillips

H English III

8 May 2017

The Status of the United Kingdoms Economy: The Impact of Brexit

On June 23, 2016, the United Kingdom let voters decide one question; should the United

Kingdom stay in the European Union (EU)? The voters decided to leave the EU in the

referendum election; a decision that will change the course of the country indefinitely. Then, on

March 29, 2017, the UK enacted Article 50 of the Treaty on European Union to formally

withdraw from the EU. Many political leaders and economic experts feared and expected an

economic crisis in the UK. However, despite minor deficits, the UK economy has remained

relatively stable, but the future is uncertain.

The UKs economy has been very resilient in the midst of its withdraw from the EU.

This finding is surprising when one considers how many people had doubts of the UK economy

in a post-brexit world. In a New York Post article, Nicole Gelinas reported that the International

Monetary Fund predicted, and claimed, that brexit would be an economical disaster. Former

Prime Minister David Cameron warned Britons that leaving the EU would present risks to Social

Security-type pensions. Former president of the United States Barack Obama also doubted the

economy if brexit were to happen (Gelinas). This is only the start of the list of reputable people

that doubted the UK economy, but one needs to take a look at what actually happened.

The statistics show a very different story than the fears of previously mentioned people.

An Economist Intelligent Unit Report stated, the economy has been resilient in the aftermath of

the Brexit vote. Real GDP grew by a quarterly 0.6% on average in the second half of 2016,
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compared with 0.4% in the first. A countrys GDP is an indication of the overall worth of an

economy. Because the UK GDP is growing, and at a rate higher than before the referendum, it is

safe to say that the UK economy is resilient and perhaps better than before the referendum vote.

Tim Bowler, a writer for BBC News, reported positive growth in the UK stock market in an

analysis of the London Stock Exchange, This [FTSE 250] index is now about 11% higher than

it was on 23 June 2016. The source also claimed a 16% rise in the FTSE 100 index (Bowler).

The FTSE 100 index and the FTSE 250 index indicate how the top 350 companies in the London

Stock Exchange are financially making out, thus giving another indication of overall UK

economy. Again, steady growth has been observed after the Brexit referendum, which indicates

that investors and stockholders still have faith in the London Stock Exchange, and they are

perhaps not worried. An interesting finding from Lianna Brinded of Business Insider is that

unemployment fell to 4.7% in March 2017, and that unemployment never rose after the

referendum vote. Many leaders speculated a sharp rise in unemployment after the Brexit

referendum, a disaster that simply did not come true. Lastly, a common pattern is evident in the

construction, manufacturing, and service industries from a report from Financial Times. All three

of these industries sharply fell after the Brexit referendum, but they quickly recovered and

increased past their pre-referendum values. A reasonable conclusion is that consumers of

products and services from these industries were uncertain, but then continued to buy products

and services from those industries. Other notable patterns include the fact that the housing

market remained widely unaffected by the Brexit referendum, and that lending to nonfinancial

companies is increasing after the Brexit referendum. It is evident that the UK economy is fairing

quite well, but there are minor deficits in the aftermath of the brexit referendum to consider.
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There were also some minor economic deficits to the Brexit referendum vote that one

should consider. According to an Economist Intelligent Unit Report, the value of Sterling (the

British Pound) fell to a ratio of Sterling to USD 1:$1.31, and Sterling to Euro 1:1.18 in the time

period of July to September 2016. These values are 10%-11% lower than before the Brexit

referendum.The value fell again after Prime Minister Theresa Mays speech that suggested a

harder stance on Brexit negotiations. This is all evidence of UK investor uncertainty. However,

New York Press writer Nicole Gelinas writes that due to this decrease in exchange rate, more

tourists are vacationing to the UK, which boosts the economy (Gelinas). On the other hand, an

economic report from the Financial Times claims that imports will become more expensive, and

the Bank of England predicts inflation to rise. March 2017 inflation was up 2.3% for consumer

products. The same source also claimed, After growing strongly, business investment has

disappointed amidst jitters around the exit from the European Union. These of course are

negative influencers, but these problems should be fixed as time goes on by sparking new trade

deals, restoring confidence in investors, and intervention by the Bank of England.

The Bank of England has attempted to cope with issues of economic deficit. Tom Bowler

of BBC News wrote that the Bank of England has reduced interest rates from 0.5% to 0.25%

following the referendum. This change should stimulate the economy and allow for more loans

and lending because those loans will be easier to pay off. Another part of the Bank of Englands

plan has been reported from Larry Elliott from The Guardian News and Media. The Bank of

England has also agreed to provide up to 100 billion of funding for commercial banks at an

interest rate close to 0.25% bank rate to compensate for lost profits (Elliott). This is to ensure that

commercial banks do not lose large margins of profits, and they can keep lending out money.

These economic programs have made an impact on the lending to nonfinancial companies.
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Annual growth rate in lending to all businesses is growing by 0.3% as stated in a report by the

Financial Times.

Many people claim that the resilience of the UK economy will last and will predict the

future of the UK. However, one should not jump to conclusions too soon because it is much too

early to tell the full effect of the UK withdraw from the EU. According to BBC News, it will take

two or more years to negotiate and finally withdraw from the EU. Negotiations will start

May/June 2017 between British representatives and EU representatives. In a 24-hour economy,

so much can change in just one day, but there is just no telling what could happen over a two

year period. For example. could one accurately predict the weather for the next two years based

off of one day? Both weather and economic prosperity have characteristics in common; they

contain general trends, but are increasingly unpredictable as one looks farther into the future. The

milestones in the UKs withdraw from the EU will be the trade deals and withdraw negotiations.

As trade agreements and other negotiations are announced, the UK economy will change with

them.

Trade agreements are very important because they can drastically change the

imports/exports, and thus the overall economy, of a country. Through the process of UK

withdraw, the UK government will have to decide on who they would like to trade with, and how

involved they would like to be in the EU. These decisions can change the actions of investors

and influence nearly every industry in a country. For example, the Economist Intelligence Unit

reported that when Prime Minister Theresa May simply made a speech regarding the idea to take

a harder approach on brexit negotiations, the UK exchange rate experienced a significant

decrease in value. This emphasizes the importance of the UK to negotiate beneficial agreements.

Trade agreements could be reached quickly between the UK and EU if the UK wishes to
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continue trade to the EU single market. Peter Foster stated in the Europe Editor the top ten

countries that the UK imports and exports from, and the majority of them are EU nations. This is

significant because if Britain decides to keep trading relations open with the EU, then their

economy will resist change. On the other hand, if the UK chases trade agreements with countries

around the world, then their economy will likely change greatly. Broader deals with a wider

scope will likely take longer based on past situations. Non-European trade deals can take four to

ten years to settle (Foster). This point really emphasizes the fact that it is much too early to

determine the economic effects when the UK officially leaves the EU.

The UK economy is stable, and even benefitting from the decision to leave the European

Union despite minor economic challenges. The UK economy is also still changing day by day in

aspects from trade negotiations to investor weariness. The fact of the matter is that because the

UK has not changed very much in a political sense, the UK economy has followed suit and not

changed. The UK people took a vote, and the UK Prime Minister declared that the UK will

leave, but no policy changes have been made for the UK economy to change at the time this

research was conducted. Because this is the case, it is in fact not surprising that the UK economy

has remained intact. Notable changes will be coming as trade agreements are settled, and it will

be up to the brexit negotiating team to give the UK the best deals. The UK/EU relationship will

prove vital to the future of the UKs economy, but for now the world will just have to wait.

Works Cited

Bowler, Tim. How Has the Economy Fared since the Brexit Vote? BBC News, BBC, 28 Mar.

2017, www.bbc.com. Accessed 24 Apr. 2017.

Brexit: Article 50 Has Been Triggered - What Now? BBC News, BBC, 29 Mar. 2017,

www.bbc.com. Accessed 25 Apr. 2017.

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Brinded, Lianna. Brexit Is Killing the Pound but It's Having a Really Productive Side-Effect on

Britain's Economy. Business Insider, Business Insider, 23 Apr. 2017,

www.businessinsider.com. Accessed 25 Apr. 2017.

Cooper, Charlie. How Britain Will Negotiate Brexit. POLITICO, POLITICO, 8 Jan.

2017,www.politico.eu. Accessed 25 Apr. 2017.

Elliott, Larry. The Bank of England's All-Action Response to Brexit. The Guardian, Guardian

News and Media, 4 Aug. 2016, www.theguardian.com. Accessed 24 Apr. 2017.

Foster, Peter, and James Kirkup. What Will Brexit Mean for British Trade? The Telegraph,

Telegraph Media Group, 24 Feb. 2017, www.telegraph.co.uk. Accessed 26 Apr. 2017.

Gelinas, Nicole. Brexit Is Actually Boosting the UK Economy. New York Post, New York Post,

29 Aug. 2016, nypost.com. Accessed 25 Apr. 2017.

Jackson, Gavin, et al. 44 Charts That Explain the UK Economy. UK Economy: GDP Growth,

Interest Rates and Inflation Statistics, Financial Times,

ig.ft.com/sites/numbers/economies/uk. Accessed 25 Apr. 2017.

Langfitt, Frank. After The Brexit Vote, Why Has The U.K. Economy Proved So

Resilient?NPR, NPR, 16 Jan. 2017, www.npr.org. Accessed 24 Apr. 2017.

May, Theresa. Theresa May's Brexit Speech in Full: Prime Minister Outlines Her 12 Objectives

for Negotiations. The Independent, Independent Digital News and Media, 17 Jan. 2017,

www.independent.co.uk. Accessed 25 Apr. 2017.

"United Kingdom: Country outlook." Economist Intelligence Unit: Country ViewsWire, 19 Apr.

2017. Global Issues in Context, go.galegroup.com. Accessed 21 Apr. 2017.