Following a June 2016 referendum, in which 51.9% of the electorate voted to leave, the UK government formally announced the country's withdrawal in March 2017, initiating a two-year process, due to be concluded on 29 March 2019.
In spite of the pre-set timeframe, negotiations took longer than expected. A long agonising struggle, which amongst other consequences, resulted in; a damaged political system, weakened economy, and an appalling reputation.
In the process, the UK parliament voted thrice against the negotiated withdrawal agreement and extended the deadline twice, with possibly further extensions following the experienced setbacks this week. This undoubtedly causing economic and political turbulence in the process.
Brexit instigating economic uncertainty
Consequent to the prolonged discussions between the UK government and the European Union, economic uncertainty amplified.
In fact, since the UK’s formal announcement, and subsequent discussions, we have been witnessing a succession of negative overall Index scores, with an overall downward trend. Notably, due to this ongoing uncertainty, the UK’s services Purchasing Managers' Index (PMI), amongst other indicators, decreased, sighting a decline in trade to the European Union.
Given that the services sector accounts for three-quarters of the Gross Domestic Product (GDP) - largest contributor to the UK’s economy, the services PMI is of paramount importance.
Impact on the EU
As previously conferred, Brexit has brought with it significant uncertainty, leaving an impact on both sides of the spectrum. This uncertainty should be somewhat lessened when the members of parliament back the deal brought forward by Boris Johnson, along with Downing Street’s timetable to deliver it, clarifying the precise terms of the UK’s post-Brexit relationship with the EU.
In addition to long-term political and institutional shifts, Brexit will undoubtedly cause both social and economic changes to the Union, especially should an unorderly one take place.
In an effort to avoid significant changes to both sides, and complete autonomy from the EU, Pro-deal MPs are seeking to keep the UK in the EU customs union and in close regulatory harmony with the bloc’s single market. To clarify thoughts, the ‘Customs Union’ is a single market which seeks to guarantee the free movement of: goods, capital, services, and labour within the European Union, whilst the ‘Single Market’ means that all regulations governing the economy are the same.
To circumvent an unorderly Brexit, and thus attain the best possible deal for both ends, Donald Tusk encouraged the EU27 to accept the UK’s request for an extension, to the 31st January. This comes after the most recent developments; where UK MPs endorsed the prime minister’s Brexit deal in a vote on Tuesday night before rejecting his timetable for passing the legislation. The crucial decision is expected later on today that will further envisage the EU27’s stance on a post-Brexit relationship.
Meanwhile, markets continue to suffer the uncertainty saga surrounding the timings of exit. At the same time Pro-Europeans continue to push for a second referendum, despite an unlikely outcome, when one had to consider the democracy aspect.
In view of this turmoil, investors anxiously await today’s developments which would give an indication to where the economy will be heading in the coming months.
Disclaimer: This article was issued by Christopher Cutajar, Credit Analyst at Calamatta Cuschieri. For more information visit, https://cc.com.mt/. The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.