IMPACT OF BREXIT: A NEW ERA IN THE UNITED KINGDOM

The impact of Brexit has had a great influence on the European economy, but especially on the economy of the country itself. If you want to know the real effects of Brexit, keep reading because in this post we give you the insight.

The impact of Brexit has had a great influence on the European economy, but especially on the economy of the country itself. If you want to know the real effects of Brexit, keep reading because in this post we give you the insight.

Impact of Brexit on imports and exports

The United Kingdom is one of the countries with the highest volume of imports and exports. In fact, international trade is key to its economy; for example, in 2019 it represented 64% of GDP (World Bank, 2020). In general terms, exports from the United Kingdom to the European Union in 2019 represented 48.3%, while imports from EU countries that same year amounted to 54.4%.

Observing the annual evolution of both imports and exports, it can be seen that the contributions of both to GDP remain constant with small variations over the years. However, according to data published by ICEX, in 2020 the country’s trade balance suffers a sharp fall. As for British exports, they decreased by 16.1% year-on-year (from 337,472 million in 2019 to 283,001 million pounds in 2020). On the other hand, British imports of goods fell 16.5% year-on-year (from 461,765 million pounds in 2019 to 385,423 million in 2020).

All this causes the trade balance to register a deficit of 74,364 million pounds, which translates into 38.5% lower than that registered in the same period of 2019 (120,881 million pounds).

Exports

In terms of exports, the United Kingdom mainly exports to the United States (15.7%), Germany (9.9%), France (6.7%) and the Netherlands (6.5%). The leading sectors are gold, vehicles and vehicle parts, petroleum oils and jets.

Imports

Regarding imports, the main emitting countries are Germany (12.4%), the United States (9.7%), China (9.5%), the Netherlands (7.8%) and France (5, 6%). The sectors that stand out are vehicles and transport equipment, fuels, gold and the medical sector.

Trade balance

Finally, it is worth highlighting the trade balance of the United Kingdom, which shows a negative evolution. This is mainly due to the fact that the volume of imports exceeds the volume of exports. The deficit is accentuated in 2019, reaching a negative balance of 1.4%, coinciding with the start of the implementation of Brexit in the country.

The impact of Brexit in foreign direct investment

In 2016 a referendum for Brexit is held. As shown visually in the graph below, the following year foreign direct investment falls dramatically. This sharp drop becomes noticeable in the last years from 2018 to 2019, coinciding with the beginning of the implementation of Brexit. The United Kingdom enters a new political process, which generates some instability in the country. This political instability puts foreign investment in the country in check since figures show that the United Kingdom is going through a period in which it is not attractive to foreign capital.

Graph: Foreign direct investment (% GDP). Source: Own elaboration with data from the World Bank (2020).

National companies listed on the UK Stock Exchange (FTSE)

The total number of companies listed on the London Stock Exchange has fluctuated over the years. However, as of 2016, coinciding with the Brexit referendum, there has been a gradual reduction in companies listed on it. In 2021 the London Stock Exchange has 1981 national companies; values ​​that make the effects of this political process in the financial sector palpable.

Brexit has also turned out to be advantageous for many countries in the European community. As the BBC (2020) points out, companies’ fear of a hard Brexit led many of them to relocate or open new offices in cities such as Amsterdam or Frankfurt. This way, you will verify that, if there has been an exit from the EU without an agreement, you will continue to operate in European territory without having to pay tariffs for your exports. Finally, Brexit has been achieved with a looser agreement; However, this initial uncertainty has caused the exodus of many companies that operated in the British state.

Annual average exchange rate from euro to pound sterling

The currency has a low level of instability. However, it must be borne in mind that “Brexit” can cause a sharp fall in the value of the British pound, which would imply some volatility, at least in the short term.

Exchange rate 03/22/2021:

1 GBP = 1.3889 USD, 1 USD = 0.7200 GBP

1 GBP = 1.1668 EUR, 1 EUR = 0.8571 GBP

If you want to know more about Brexit and its effects on customs click here!

Stay tuned to our blog to learn more about the international business world!

Marina Díaz

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