The historic deal on the UK’s future trading and security relationship with the European Union was finally agreed on Christmas Eve 2020. And while the UK has been preparing for Brexit since the result of the referendum in 2016, no one could quite have predicted the impact.
Europe has been Britain’s largest trading partner for centuries, and already we’ve seen disruptions at European borders, as well as supply chains in disarray as a result of the new tariffs. In the wake of the referendum, we saw the pound plummet against the euro. Eventually, the currency pairings levelled, but will this happen again now a deal has been struck?
It’s fair to say that when the referendum was announced, no one could have foreseen a global pandemic that would bring economies around the globe to their knees – leaving the UK to fight a battle on both fronts. So, not only is the UK economy showing the negative economic impact of leaving Europe’s single market and customs union, but it’s also facing its highest levels of unemployment since the referendum. The jobless rate rose to 5% – meaning with more people out of work, there are fewer people spending, which is having a negative impact on the economy too.
And while it’s too early to tell what the real long-term impact of Coivd-19 will be on the UK economy, economists in both Europe and the US both agree that the UK economy is likely to be at least several percentage points smaller in 2030 than it would otherwise have been, if the UK had remained within the European Union.
In the short-term, the deal removes the uncertainty that was prevailing. As a result, UK firms can now create financial forecasts and create growth plans based on the final outcome of the deal – which they were unable to do before. In the long-run, it’s expected that the UK will be richer than it would have been under a ‘hard Brexit’ – but still substantially poorer than if it hadn’t left the EU at all.
But what does this mean for businesses? The main implication for leaving the EU means leaving the customs union. While the UK did secure a trade deal allowing UK businesses to continue tariff-free trade with its EU neighbours, the rules are a little different – and not as straightforward as before.
And those who hoped Brexit would unshackle them from the EU bureaucracy and ‘red tape’, may find that leaving the bloc has actually left them with more paperwork than before.
For businesses to truly understand the economic impact of Brexit, it’s important for them to understand the forex market. Using a UK forex broker will help businesses understand more about the UK economy and the impact the GBP is having on other currency pairings.