Where are we with BREXIT?

Hello readers welcome back to my blog. Last week I discussed the recent announcement of the Heathrow expansion and its potential impacts on the UK. This week I will be discussing perhaps the most controversial issue in Britain, which has been flooding the news over the last few months: BREXIT. It has caused lots of economic turmoil and has had a number of significant impacts on the everyday consumer as well as affecting many industries and firms, mainly due to the falling value of Sterling, low ‘animal spirits’ and high levels of uncertainty. So much so that Nissan, the Japanese car manufacturer that has based it’s car manufacturing plant in Sunderland, was thinking about potentially not investing in the future of the plant which supports around 30,000 jobs. On the flipside brexit has surprised many economists with not actually causing the country to go into a recession like many ‘remainers’ predicted before the referendum. But why did it all have to happen in the first place? Was it necessary to create so much uncertainty? It is also poses a number of other key questions such as will the UK still have access to the single market, i.e. will the UK opt for a soft brexit or go down the route of a hard brexit. Other questions such as will there be another general election, how long will it be until article 50 of the Lisbon Treaty is actually triggered, if it is ever triggered, and what does this all mean for the average person. More recently the high court has rejected that the government has the right to trigger article 50 by royal prerogative and that any such step requires approval from parliament, but this is set to be challenged.

A little lost already? Stick with me as I aim to summarize the key issues caused by brexit and answer some of these fundamental questions that ultimately determine the future of Britain. If you have a few minutes to spare, give my take on the brexit situation a read and hopefully by the end of it will have a clearer understanding of the UK’s current position. If you have any questions or suggestions, please post them below and I will try to respond, or email them to me at rajveersira@gmail.com

Why did we even need brexit in the first place?

The answer is we didn’t really need to have a referendum. Apart from UKIP and its followers, it is fair to say that many people were quite happy with the UK’s previous set-up, although David Cameron, back in 2013, made it part of his manifesto as he wanted to settle the EU issue once and for all and thought that it would be convince people to vote for the conservatives rather than defecting to UKIP. His aim was to comfortably win the referendum and give the UK confidence and stability. Ironically he lost and it became clear how divided Britain really was. Although with such a small majority of people (52%) voting for brexit and such a high number of ‘Bregreters’ as well as those who voted as a protest vote or because of a lack of education and understanding of what brexit actually was, it is questionable as to whether a second referendum should have been called and whether the outcome would have been what many of us had hoped for. It is strongly controversial whether brexit is actually the right decision for the country. One may justify brexit by saying it gives new opportunities and allows us to control immigration, but does it really? With an aging population, surely we would want to allow young, motivated and hard working people into the country who pay taxes and will contribute to the economy.

We only have to look at the exchange rates, which demonstrate simple supply and demand to see that brexit perhaps wasn’t the smartest move.

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Will Theresa May call a general election and if so what is her plan?

This question is purely down to speculation and Theresa May has not yet given any indication as to whether she will be calling a general election anytime in the near future. One rationale for doing so could be so that she could possibly negotiate a better deal with Europe which would allow the UK to remain in the EU perhaps with stronger border controls and call a general election on that basis especially since the Labour party is currently in a state of turmoil and is unlikely to win a snap election.

What are the impacts of brexit so far?

Here are just a few of the damaging effects of brexit:

  • With all the hype and excitement surrounding brexit and its issues, Russia has seized the opportunity to take control of the situation in Syria and has placed vessels in the Mediterranean, yet this has so far been overlooked.
  • There may be growth in the short term due to the weak pound and increase in the real purchasing power of money for other countries leading to higher exports which are an injection into the circular flow of income, however it has made imports much more expensive and since the UK is a net importer with a trade deficit accounting for around 6% of GDP this could severely worsen the balance of payments. It is important to note that the US dollar is thought of as the global currency and most commodities are in dollars, so the 32-year low in the value of sterling against the dollar will really impact this. However if Donald Trump wins the US election it is not unreasonable to expect that the dollar will fall like Sterling did when the UK voted to leave the EU.
  • Stagflation where there is a period of sluggish growth but high inflation is what the UK is likely to face because of the increase in imported goods such as fuel.
  • The ONS has said that the recent inflation figure of 1% is not ‘explicitly linked’ to the fall in the value of the pound and that rising prices are just because the cost of fuel and other items such as clothes were cheaper last year. It is estimate that by next year inflation could rise to as much as 4%, which is above the asymmetric target of the bank of England. This would almost certainly mean that interest rates would rise in order to combat this having subsequent knock on effects on the housing market.
  • Housing market-more and more houses over one million pounds in London are being put on the market as landlords are uncertain about the future of Britain and what lies ahead.
  • Luxury houses over 5 million have had to reduce prices by hundreds of thousands to attract forging investors who have been put of by all the uncertainty.
  • Although the UK did not experience a recession as predicted growth has slowed down from 0.7% in Q2 to 0.5% in Q3 2016.
  • If overall animal spirits (a Keynesian idea) are low this could lead to reduced spending and a contraction in aggregate demand, which may create a negative wealth effect.
  • Negotiations have yet to begin and Theresa May is not going to give a ‘running commentary’ as she says this could impact negotiations.
  • The cut in interest rate from 0.5% to 0.25% has impacted growing pension funds.
  • The number of homes for sale is at a 30-year low
  • Hate crime and racially motivated attacks have been on the rise since 23rd
  • Holidays abroad have become much more expensive and the pound’s crash is finally starting to scare regular people.

screen-shot-2016-11-06-at-23-23-20                      screen-shot-2016-11-06-at-23-23-13

Has Nissan been promised anything special?

Nissan has said they will be producing the next models of their Juke and Quashaqi in the UK although Theresa May is not telling us what has deal the UK government has agreed with Nissan that has convinces them to continue investment in Sunderland. Interestingly in Sunderland 6/10 people voted brexit, which is clearly very shocking.

“We want our country back”!

Many ‘brexiteers’ used the expression ‘we want our country back’. However they did not perhaps understand what brexit was all about, and that even though it may have controlled immigration, until Britain actually leaves there will still be high or even higher rates of immigration. Also immigration is not necessarily a bad thing and although people feel jobs are being taken from them, they perhaps do not see how we need a younger population to pay for rising pensions.

What next…? What is the future for Britain?

The next step is simply to wait and see the outcome of the appeal of the high courts decision. Following this we will know when article 50 is likely to be triggered, how long the whole process will actually take and if another general election will be called. What the UK clearly needs is certainty and stability. Perhaps the boldest move would be simply to call another general election in the hope that Britain would make the right decision the second time round. It is also important to note that when the high court did block the so-called move to trigger article 50 the value of sterling rose by around 0.75%. If brexit does eventually go ahead, it is hoped that this will be a soft brexit, as this would benefit trade within the UK. Mark Carney, the governor of the bank of England said that a brexit court defeat for the UK government is, “just one of many twists and turns that are likely to happen” as Britain progresses further with leaving the EU.

 

 

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