Brexit sends economic shock waves across the globe
The British vote to leave the European Union threatens negative consequences for global economies, but the United Kingdom is likely to feel the worst financial pain.
As the British vote to leave the European Union rattled markets worldwide, experts warned that the withdrawal will have consequences for the global economy for years to come.
The British voted 52-48 percent in favor of leaving the European economic alliance after a bitter campaign marked by misinformation and driven by growing concern about immigrants from Europe and the Middle East.
In a vote that revealed sharp divisions between young and old and between regions, Britons set in motion a process that could take years to play out.
Nevertheless, the impact was immediate: stock markets saw steep declines the day after the vote while a group of the world’s largest economies rushed to offer reassurance that they would take necessary action to calm disrupted markets.
In U.S., “significant repercussions”
In the United States, Janet Yellen, chairwoman of the U.S. Federal Reserve, told Congress “the U.K. vote to exit the European Union could have significant economic repercussions” as it fueled economic uncertainty and volatility in global markets.
“That would negatively affect financial conditions and the U.S. economy,” Yellen said.
Among other impacts, the British vote caused the value of the pound and the euro to drop, driving up the value of the U.S. dollar. A surging dollar might benefit some industries, such as tourism, but could also suppress U.S. exports.
While the British withdrawal could slow growth of the U.S. economy, The Wall Street Journal said a contraction is unlikely.
The vote also made it less likely that the Federal Reserve will move forward with interest rate increases until next year.
Britain is the second largest economy and a major trading partner within the European Union, which could experience a credit crunch amid the uncertainty about future trade.
At the same time, some of the EU’s other 27 member states might be able to draw direct investment away from Britain if its access to markets is reduced.
Britain likely to suffer most
Experts say Britain likely would take a bigger economic hit than the countries in European alliance.
Officials have said the economy of the United Kingdom could be up to 7.5% smaller by 2030, depending on what trade agreements the nation is able to negotiate with the U.S. and with its former European Union partners. And the EU might take a hard negotiating stance with Britain to discourage other nations from leaving the alliance.
Manufacturers in Britain will pay higher tariffs – half of the nation’s exports go to the Eurozone – and, perhaps even more costly, they will have to go through safety certifications with dozens of individual countries in the European market.
Financing for business ventures in Britain could be affected. The assurance of access to markets is often a factor in investment decisions. Britain has attracted 20% of direct investment in the EU over the past 15 years.
In addition to creating economic uncertainty, the British vote underscored deep divisions in British society.
Much of the campaign in favor of Brexit focused on opposition to relatively loose immigration rules in the EU that have brought many unskilled workers from Poland, Bulgaria and Lithuania to Britain. A wave of immigration in the last 20 years has dramatically altered British society, especially in London and southern England.
A flood of refugees into Europe from Syria and other war-torn Middle East nations inflamed the debate.
British Prime Minister David Cameron, who said after the vote that he would resign by October, was unable to persuade fellow EU members to allow him to limit European immigration, even for a few years.
Anticipated for months with considerable anxiety in Britain and abroad, the Brexit vote was preceded by an often bitter campaign that reached a crescendo with the murder of a member of Parliament, Jo Cox, by a pro-Leave countryman.
Age, regional divisions
Beyond immigration, the vote showed an age gap, with large majorities of younger Britons favoring staying in the EU while older voters were more likely to vote to leave.
Majorities in Scotland and Northern Ireland also wanted to stay and the vote triggered debate over whether those countries would seek to go it alone since they no longer have the considerable incentive of EU membership to stay in the United Kingdom.
In the aftermath of the vote, it also was uncertain whether some Britons understood the implications of what they had voted for.
As it became apparent that Brexit would pass, Google reported spikes in searches in the United Kingdom for “what is the eu” and “what is brexit.”
— GoogleTrends (@GoogleTrends) June 24, 2016