On June 23, 2016, an historic vote in the United Kingdom forever changed the course of history. The UK voted to break away economically and to a lesser degree politically from the ‘constraints’ of Brussels, and the EU. The media frenzy surrounding the Brexit referendum had pundits believing that there was no possible way Brexiteers would get their wish. They were considered a fringe group of extremists, but the media got it wrong. They have gotten it horribly wrong many times since then, more recently with the election of US President Donald J. Trump. But it’s the Brexit issue that lingers and presents the greatest challenges to Europe and the United Kingdom. Come Friday, 29 March 2019 at 11 PM, the UK will be required to leave the EU.
The issue of what to do with Britons living abroad and Europeans living in Britain is an important one. For starters, there are millions of people from both the EU and Britain living outside of their countries. This large expatriate population is already experiencing all manner of financial difficulties through the recent volatility of the GBP. Global transfers from Europe to the UK and the UK to Europe have been increasing in recent years, thanks to the Brexit issue. The list of service providers offering these international money transfers is currently populated by many non-bank financial institutions, Recall that its zenith, the GBP was trading around 1.47/1.48 to the USD. It soon plunged to 31-year lows, and only recently started to claw its way back to those levels. Expatriates can benefit from GBP weakness by sending EUR, USD, JPY, SEK and other currencies back to the UK. This results in boosted performance of the GBP, and has a lag effect on stock portfolios.
The Brexit issue presents as an unprecedented economic and political calamity for Europe, the likes of which it last encountered with the overhyped Grexit (Greek Exit) fears. According to the terms of the Lisbon Treaty, Britain had 2 years from the date it announced its intention to leave the EU for the formal ratification of a Brexit. Article 50 of the Lisbon Treaty is an interesting legal triggering mechanism, and the process got underway in March 2017. With approximately a year to go, the UK government must muster all the support it can to prepare for Brexit. The negotiations have been exceedingly difficult, with both EU and UK officials struggling to come to consensus on any number of issues.
What was the Final Vote Tally in Favour of Brexit in the UK?
According to the BBC, 72.2% of the UK electorate voted in the Brexit referendum. Of that, 51.9% voted to leave the EU, amounting to 17,410,742 votes. The Bremain (Britain remains in the EU) vote amounted to 48.1% or 16,141,241 votes. There were some 26,033 rejected ballots. It is interesting to point out which parts of the UK voted overwhelmingly in favour or against a Brexit. Scotland (62% to remain) was largely against a Brexit, as was Northern Ireland (55.8% to remain). But it was England (53.4% to leave) and Wales (52.5% to leave) with their large populations that swung the needle in favour of a Brexit.
And so, the Brexiteers got their wish and history was made. The areas in the UK overwhelmingly preferring a Brexit included Arun (62.5%), Northumberland (54.1%), Stoke-on-Trent (69.4%), Derby (57.2%), Northampton (58.4%), Cornwall (56.5%), Amber Valley (60.3%), Ashfield (69.8%), Lancaster (51.1%), Luton (56.5%), and many others. The listing of pro-Brexit cities and districts in and across England sent a powerful message to 10 Downing St., and Brussels alike. The British Prime Minister at the time, David Cameron was taken aback by the results, even though he was heading the Tory government. The London Mayor, Boris Johnson was spearheading calls for a Brexit, posing a serious challenge to the PM.
According to Article 50 of the Lisbon Treaty, ‘any member state may decide to withdraw from the union in accordance with its own constitutional requirements’. Once Article 50 has been triggered, the European Council is officially notified of the UKs desire to leave the EU and it will no longer be bound by EU rules. Of course, there are many complications inherent in the extrication process. These include the rights of EU citizens living in the UK, and vice versa. There are also existing business agreements, financial partnerships, and related deals between UK and EU companies that need to be consolidated, amended, or ratified.
Concerns for the UK Post Brexit
Other challenges to a successful Brexit include passports, travel, work permission, and borders. While the UK was part of the EU, residency requirements for all nationals in the single bloc were easier to understand. Now there is the issue of what to do with people post-Brexit. These are but a handful of the many challenges facing the UK government as it looks to carve out new alliances with Asia and the West, post-Brexit. Of course, one of the most urgent concerns is the UK economy, and the currency. The GBP has whipsawed wildly since the June 23, 2016 referendum. It plunged spectacularly from 1.47/48 prior to the Brexit and hit a 31-year low soon thereafter.
This has far-reaching implications for UK business, listed companies, and UK indices. Every time the GBP weakens, the FTSE 100 index strengthens, and vice versa. This well-established relationship saw the FTSE 100 index rising well above 7,000 as sterling continues to plummet. However, there has been a strong resurgence in the value of GBP, leading many to believe that the separation from the EU will not be as detrimental as once thought. Negotiations began in earnest, and both parties agreed to making significant headway in the Brexit discussions. However, the EU’s head negotiator Michel Barnierand his EU counterpart, David Davis have been at loggerheads many times.
Upcoming Meetings Prior to the Looming Brexit Deadline
According to Davis however, the UK has set March 29, 2019 at 11 PM GMT as the official date that Britain will depart from the EU. Some of the most important dates to remember moving forward include September 24 when elections in Germany will determine what becomes of Chancellor Angela Merkel, and then another meeting in October 2018. The latter is a crucial date to watch, since it is 6 months prior to the official divorce between Britain and the EU.
At that point, details of a final Brexit deal can be ratified. A big part of the reason Britain left was money. The UK was subsidizing Brussels to the tune of billions of pounds, and many UK conservatives commented that foreigners were using up valuable NHS resources and costing Britons a fortune. It’s a difficult predicament to be in, given that the UK is now negotiating to repay the EU a tidy sum in the separation agreement.
It was once thought that £350 million per week was sent by the UK to the EU. This according to Boris Johnson, is precisely what Britain pays the EU. However, the UK’s membership fee with the EU is £17.8 billion. Once the Treasury report was conducted, that figure was actually £375 million weekly, or £19 .5 billion. In November, The Guardian ran an article stating that the UK could pay upwards of £50 billion after UK leaders and EU leaders could not come to consensus. That’s the figure that was needed for heavy hitters like Germany and France to sign off on any new trade deals post-Brexit with the UK. Figures as high as £89 billion have been floated, but UK government ministers are insisting that the true figure will be approximately 50% of that. In any event, these are serious concerns for the UK post-Brexit, given that the burden will be brought to bear on UK workers.
Is the Brexit officially on?
According to Labour and Conservatives, the Brexit issue will move ahead as planned. However, several politicians and parties have threatened to derail any Brexit plans by requesting a snap referendum on the issue. It looks as if Britain will be leaving the EU in March 2019, preferably with a framework for Brexit in place. The British Prime Minister was against a Brexit during her early days, but promised to support a Brexit once she was sworn in. The UK economy has been in all sorts of turmoil since the Brexit saga became priority number one.
The GBP/USD pair is back at parity with pre-Brexit levels, but the GBP remains approximately 15% weaker against the EUR. UK economic growth remains robust, despite reports that the Brexit issue will destroy UK manufacturing and service industries. The purported single market refers to the EU bloc and if Britain leaves, it will no longer enjoy all of the privileges such as no customs duties, tariffs and trade fees. However, there is a customs union in place. The single market is a reference to broader integration and interaction between the EU and the UK.
In summary, it is important to manage personal finances well during this volatile period in Britain’s history. Britons with assets abroad stand to benefit significantly by repatriating their earnings, salaries, wages and so forth back to the UK. If the GBP strengthens, much the same can be said of Europeans living in the UK. Of course, banks will be having a field day with all the money changing hands, and the high spreads, fees and commissions they can charge on unsuspecting clients. After the dust has settled, it’s money transfer companies that will reap the rewards of these actions since they offer the best value to Britons.
