The UK’s decision to leave the EU has caused markets to enter a period of volatility. With some stock market index’s showing decline and the strength of the pound decreasing. Anyone who was unfamiliar with economics would look at our country’s predicament and think there’s an imminent national and even potentially international economic collapse. However, this is not at all the case. In this article I’m going to dispel the myths and tell you, the reader, why ‘Brexit’ has fundamentally changed our economy for the better despite what you’ve heard in the mainstream media.
Firstly, in response to our ‘weakened’ pound. The pound has fallen from a high of 1.61 against the dollar to 1.30 (roughly) against the dollar. When the average person hears weakened they think their money has less value then it previously had. Those people are of course mistaking inflation with the exchange rate. The exchange rate is merely how a currency appears on foreign markets, nothing more. A ‘weak’ pound means that imports become more expensive in the UK but also that exports appear cheaper in foreign markets. Therefore our manufacturing sector will have a huge boost and really any company who sells goods abroad will hugely benefit from a weakened pound. This can be best shown by the recent performance of the FTSE 100 which is currently higher than it was pre-
brexit, this is because most of the UK’s top 100 companies trade internationally and so benefit from
a weaker pound more than most domestic firms.
Many people fear that a weak pound will increase the price of food and other essentials of that nature and under normal circumstances they’d be correct however in the UK, the supermarket industry is in oligopolistic competition, meaning there are a small amount of large firms such as Tesco, Waitrose, Sainsbury’s etc. Due to this market structure prices tend to stay very stable despite firm’s costs changing, this is because if they increase their prices consumers will simply go elsewhere because, to a certain degree, all supermarkets are homogenous, there’s not that much difference between Aldi and Tesco. If the supermarket were to reduce prices then other supermarkets would follow suit and reduce their prices. This would start a price war and a new equilibrium price would settle at a lower level and typically no one wins, except the consumer who now has to pay less for the same good. Therefore it’s true that some obscure goods might rise in price but a situation where the price of essentials rises is unlikely.
As for the stock markets. The stock markets play a huge role in the UK’s economy, London as a whole generates roughly 30% of tax revenue and the largest contributor in London by far is the financial services sector centered in ‘the city’. Directly after the UK voted to leave the FTSE 100,250 and 350 all dropped dramatically, this could have cataclysmic effects on the UK’s economy if the result was continuous or even sustained. However one look at today’s stock market will show you that, as I stated before, the FTSE 100 is higher than it was pre-brexit. The FTSE 350 is higher than pre-brexit as well. Although the FTSE 250 hasn’t recovered to its pre-brexit level, far from it being in decline due to Brexit, it’s actually considerably higher than it was in February where the prospect of a ‘brexit’ was highly unlikely. The idea that Brexit has doomed our stock markets clearly has no real weight to it.
If we’re only looking in a short-term frame then it seemed that Brexit could be interpreted both ways but it’s clear our long-term future is golden. Once we leave the EU we’ll gain back the ability to make our own trade deals. Currently of our top 10 trading partners we only have trade deals with 3 of them, due to the deals being made at a European level which needs a 28 member state consensus. Just hours ago it came out that Sajid Javid (business secretary) was beginning trade talks with India (third largest foreign investor in the UK) as part of his ‘trade tour’ which also includes, the USA, Japan, South Korea and also China whose state run International trade and economic cooperation has said that China is open to launching trade negotiations with the UK as it’s frustrated with the EU.
Brexit has removed the handcuffs off the United Kingdom and opened the jail door, all that Britain has to do now is walk through it into the shiny light… of freedom and economic prosperity.
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