The After Effects of BREXIT


Courtesy - FT.com

Now that dust is settled and UK is bound to get out of European Union, some after effects - short & long term come to mind.

  • Sterling will take a hit in the short term. 

    • Besides investors sentiment, it is possible that several remaining countries in the EU might just dump their sterling reserves - both out of fear and perhaps some even out of spite. All that extra sterling in the world market will take it lower. 

  • Rise in Inflation

    • With both labour and goods finding it hard to enter as easily, temporarily both goods and services will become expensive. Most importantly food related since UK imports a significant portion of it. A weak sterling might become worse off as its buying power dwindles.

  • Market beating results from companies who draw revenues offshore.

    • Any company which draws significant revenues from US and other regions will beat market estimates for a few quarters as the sterling drops in the short term, leading to better conversion. 

  • Rise in GDP over long term. 

    • As many industries become free of quotas imposed by EU, the de-regulation will help make trade and production easier. 

  • Unrest in EU countries with strong industries. 

    • Countries like Germany and France could experience civil unrest and an equivalent pro BREXIT emotion in the short term. This call to get out will get stronger as UK's macros improve and Germans see the value to being able to completely govern themselves. 

  • Rise in Sterling over long term

    • GBP is a already a reserve currency and as its industries flourish, the faith in it will also. It will rise against several other currencies.  

  • Improvement in skilled labour levels

    • As the borders become uniform, countries like India will gain significantly. UK will be able to attract fair and better skilled labour which will eventually help UK remain competitive. 

  • An overhaul of European Union

    • EU will be need to better balance their act between countries which are contributing significantly to its uplift and the ones who are under performing and looking for aids or bailouts. 
    • Without a re-think, the system could become too heavy to sustain itself. 
The most underlying crux on BREXIT is that
  • The dust will settle down. Eventually, at the core of it, we're talking about a country that wants to operate independently - which isn't new. Several countries operate independently. 
  • And as long as goods and services are desirable and sales are profitable, trade across the borders will occur irrespective of union like trade agreements. Several countries all over the world trade significantly without having such bulkier trade agreements in place. 
Good or bad, is a historic day indeed. 

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