BREXIT

BREXIT

Introduction

The United Kingdom, in 2015, voted a referendum that enabled Brexit under the leadership of David Cameroon. The article was presented by Prime Minister Theresa May in 2017 before she resigned voluntarily. The decision of Brexit has impacted the economy of the UK significantly. The UK pound falls below the dollar a day after the referendum for the last 30 years. UK economy has been experiencing rising inflation rates making the economic growth rate decline. Also, many businesses have relocated to EU headquarters. Employers are facing difficulties in securing the workforce. In terms of trade, there are no new regulations of trading; hence the banking sector is facing problems since the agreement of Brexit was reached.

Impact of Brexit on the UK and EU banking sector

The financial sector is one of the most significant industries in the economy of the UK, contributing up to 12% of the GDP. Also, the financial sector of the UK lends up to $ 1.4 trillion to EU companies. UK is facing a big challenge whereby the EU has set new standards for non-EU seeking special services from the UK must meet first the EU standards. The UK needs to be allowed to enter into a negotiation with the non-EU countries to avoid breakup after exit. The country export lucrative financial services to the EU and other countries. The services are at risk following the Brexit agreement. The UK has boosted its financial services after the exit by lowering the capital requirements, loosening labor laws, and reducing taxes in the industry. The chaining value of the UK and EU financial firms and their ability to provide the best execution to their client’s transaction will be difficult. UK will not align itself under the regulations of the EU, and this will break the chain of the firms. Clients will experience a hostile environment since the chain value no longer exists after the break-up.

EU and UK change in the operational costs and financial resources prices will be impacted both positively and negatively. In favorable terms, UK will experience tremendous financial resources since it’s the lucrative hub for financial services by attracting non-EU countries and partnering with other commercial hubs globally like Hong Kong and Singapore to expand their market scope. On the other hand, the EU will suffer from financial deficits since more than 60 EU companies depend on UK financial services. The companies will be forces to incur more operational costs due to new set regulations. The UK also will experience high operational costs due to immigration restrictions, and the workforce will be less than expected.

The change of regulatory framework will foster the client’s services, especially the non-EU countries. Modification of the same on the EU will limit UK from supplying their services to EU members hence reducing the size of the market for the UK. Capital markets will be forced to operate within the framework. Following the depreciation of the value of the pound immediately after Brexit, UK will be forced to pay more than the borrowed amount when servicing the sovereign debt. The public debt will be calculated per the current value of the pound, yet the current price is lower than the previous value.

The liquidity of EU and pound dominated assets will depreciate since the pound value is low after the break-up. The assets will be valued at a low price, and the liquidity will be below the expected value. The action has led to a loss on the pound dominated assets, and they will make gains to any member of the EU buying the assets. The capitalization of EU and UK financial institutions will not remain solvent. The UK financial institutions’ assets may be equal or less than the liabilities because of the value of their currency, which is below that of the EU euro. The cost of both currencies GBP and Euro will be different. The GBP is of less value compared to the Euro due to Brexit reasons.

Conclusion

Brexit has seen the UK undergoing economic difficulties. Two prime ministers have resigned over the same. The country is experiencing a financial crisis due to new financial and trade regulatory frameworks that do not work on their favor by the EU. The economic growth rate is slow, the value of the currency has depreciated, and the workforce is reducing day in day out. The Brexit decision has both positive and negative impacts on the UK, and the government needs to legislate regulations that enable the country to survive the ongoing financial crisis.

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