Brexit

Definition

Brexit is a term that refers to the departure of the United Kingdom (UK) from the European Union (EU) and the European Atomic Energy Community at the end of January 2020. The term is a portmanteau of “British” and “exit”. It was a significant economic event that impacted global financial markets, trade agreements, and immigration rules.

Phonetic

The phonetic spelling of “Brexit” is: /ˈbrɛksɪt/

Key Takeaways

1. Trade and Economic Impacts: Brexit caused a significant shift in the trade relationships between the UK and its largest trading partner, the EU. It has impacted the economic status of the UK, incurring additional costs for trading goods, and creating potential supply chain disruptions and uncertainties affecting several industries including automotive, pharmaceutical, and agriculture.
2. Regulation and Control: Exiting the EU enables Britain to regain control of their regulations in various sectors like environment, fisheries, and immigration policies. However, it also necessitates the formation of new trade agreements and regulations with the EU and the rest of the world to ensure its global economic status.
3. Sociopolitical Consequences: Brexit has deep sociopolitical ramifications, including potential threat to the unity within UK, where Scotland and Northern Ireland voted to stay in the EU. Also, issues regarding the management of Northern Ireland’s border has also been a significant concern post-Brexit.

Importance

Brexit, a term combining “Britain” and “exit,” refers to the decision of the United Kingdom (UK) to leave the European Union (EU) and the European Single Market, an economic partnership that allows free movement of goods, capital, services and labor between member states. Brexit is significant in the realm of business and finance due to its vast economic implications. It has led to uncertainty in trade agreements, movement of labor, currency fluctuations, market volatility and changes in economic policy in the UK and EU. These ramifications affect not only the European economy but also the global economy given the financial significance of the UK and EU in worldwide economic affairs. Hence, understanding Brexit is essential for businesses and investors globally.

Explanation

Brexit, a term that combines the words ‘Britain’ and ‘exit,’ is primarily associated with the United Kingdom’s decision to leave the European Union (EU). The purpose of this exit was to allow the UK more autonomy in its economic, political, and legal decisions away from the constraints and obligations of EU membership. The move was seen as a way to regain control over areas such as immigration, trade deals, and law-making decisions, which proponents argued were being excessively influenced or dictated by EU policies and EU institutions.The reasoning behind Brexit was not purely theoretical; it had practical implications, especially in the business and financial sectors. For instance, exiting the EU meant that the UK would need to renegotiate trade agreements with not only the EU, but also other countries worldwide. The move was anticipated to potentially free the UK from what it considered unfavorable trade conditions under EU policies. Moreover, by taking control of its immigration policies, the UK believed it could more strategically manage its workforce, potentially benefiting UK businesses. However, this came with trade-offs, including disruption in sectors that were highly integrated with the EU, potential uncertainties during the transition period, and the need to manage the complex task of uncoupling UK laws from those of the EU. With Brexit, the UK aimed to navigate these challenges for what it perceived to be long-term socioeconomic benefits.

Examples

1. Impact on Currency: After the Brexit vote in June 2016, the British pound fell to its lowest value in decades. Uncertainty about the impacts of Brexit made forex markets nervous, thus devaluing the pound. Many businesses, especially global ones, faced significant consequences as a result, such as higher import costs.2. Supply Chain Disruptions: Many businesses, such as car manufacturers and pharmaceutical companies, rely on closely integrated supply chains across Europe. Brexit has resulted in changes to tariff and non-tariff barriers, difficulties navigating new regulations, and in some cases, delays at the border. An example is fresh produce and meat importers who experienced delays because of Brexit, causing a shortage in certain items in supermarkets like Tesco and Sainsbury’s.3. Relocation of Businesses: Brexit has resulted in some businesses relocating their operations away from the UK to ensure continued access to the Single Market. For instance, Barclays relocated some of its assets and employees to Dublin in preparation for Brexit, while Panasonic moved its European headquarters to Amsterdam. These relocations not only impacted the businesses themselves but also the employees and the local economy.

Frequently Asked Questions(FAQ)

Related Finance Terms

• European Union (EU)
• Article 50
• Single Market
• Customs Union
• No-Deal Brexit

Sources for More Information

• BBC News – Brexit
• The Economist – Brexit
• Financial Times – Brexit
• Reuters – Brexit