By: First Union
What Brexit Could Mean for Your Wallet
Are you worried that Brexit will affect your finances? Are you unsure of the repercussions of Brexit and the long term effects it could have on your wallet? Are you concerned your investments will decrease in value once Brexit is pushed through?
Brexit ("British Exit"/) was a referendum from back in June of 2016 where the United Kingdom voted to leave the European Union because it was voted that the benefits of belonging to the unified monetary body (the European Union/) was no longer beneficial for the country and no longer outweighed the costs of free movement of immigration. In the original vote, 17.4 million voted in favor of leaving the European Union (15.1 million voters wanted to remain apart of the European Union/).
Soon enough, it was found that the concept was easier said than done. In March of 2017, former United Kingdom Prime Minister Theresa May submitted the Article 50 withdrawal notification to the European Union, which began the separation process. If you have been watching the news, you know that the "due date" to no longer be apart of the European Union has been essentially a rolling date, which is most likely to now be due by the summer of 2020. You may also know that Boris Johnson is now the Prime Minister of the United Kingdom (as of July of 2019/) and has taken over responsibility of pushing Brexit through and declaring the United Kingdom an independent monetary entity (The United Kingdom will no longer use the Euro (EUR/) and will only use the Great British Pound (GBP/)/).
What Caused Brexit?
Back in 2015, the Conservative Party of the United Kingdom called for the referendum. Most pro-Brexit voters are older, working-class residents out in the countryside. With the increase of immigration of refugees, they were afraid of the free movement and the loss of their jobs and benefits. Also, many felt as though the United Kingdom paid more into the European Union than what they received.
Brexit has been caused out of fear but has made the United Kingdom, along with every other country apart of the European Union look at what is best for their country, their people, and their economy.
The Effects of Brexit on the United States
Essentially, a vote for Brexit is a vote for currency isolation, which is completely against globalization. When the United Kingdom leaves the European Union, they are leaving one of the main currencies of the world, which creates a lot of uncertainty. One thing to consider is that with the United Kingdom stepping away from the European Union, the United States' currency system is perceived as stable, in comparison. If the United States looks stable, London could lose a lot of business, and New York may see an increase.
An example of this is the day after Brexit was voted on - the currency market was a mess! The Euro fell two-percent. The GBP fell eight-percent. As both fell, the value of the United States Dollar (USD/) increased. However, as the currency market goes up, the stock market did not have the same effect. American shares became more expensive for foreign investors, which in the long run could lead to less international trading and investing.
Other Brexit outcomes that could affect your wallet are:
- The United States, in 2018, exported $141 billion to the United Kingdom, while importing $122 billion. This surplus could become a deficit if a weak pound makes the United Kingdom's imports more competitive.
- Jobs become at risk for both the United States and the United Kingdom. This is even more heightened with the current immigration into both countries.
- Inflation, inflation, inflation. Trade with the United Kingdom could completely change because it increases the United States' costs and stability. "Free trade" with the European Union will no longer be an option.
- Travel to the United Kingdom will increase drastically.
- The United States' Federal Reserve will most likely have to raise their interest rates. Though this is a great sign that the United States' economy has recovered from the Great Recession, it can still have an impact on your wallet.
One thing to remember is that the President has offered a "great trade deal" upon the completion of Brexit, to work together to reduce any negative effects that may come about without a proper deal. Additionally, Brexit is great for those who save their pennies. If you invest your dollars correctly, you can see a great ROI on your finances.
The Ripple Effect of Brexit
In addition to the trade issues and inflation, you will also most likely see the following situations occur, which could ultimately affect your wallet:
- Scotland may consider leaving the United Kingdom and may opt to join the European Union as an independent entity. This would mean Scotland would continue to use the EUR, rather than the GBP.
- The United Kingdom will hit a financial low. They will have to pay billions of EUR to the European Union to finalize the "divorce".
- The United Kingdom's lower economic growth could plummet real estate prices.
- Businesses run in the United Kingdom that is owned by foreign investors may decide to relocate their business since the United Kingdom will no longer be apart of a globalized currency.
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