Britain’s economy was plunged into a dizzying unknown on Friday (24 June) as the country lurched towards the EU exit, with the world economy bracing for a hit on growth and unemployment.
Financial markets on Friday indicated the turbulence that lies ahead for the world’s fifth biggest economy, with the pound falling to its lowest level against the dollar since 1985.
Those who voted for Britain to remain part of the EU argued long and hard about the economic risks of Brexit, but ultimately appear to have failed to convince voters.
The UK must now face up to the swirling winds of change.
In the short term, a financial storm is expected to blow far and wide from across London’s trading floors to all corners of Britain.
The many political uncertainties linked to Britain’s lengthy exit process are set to impact the country’s economy in the medium to long-term, according to experts.
The pound collapsed to a 31-year low and currency, equity and oil markets went into freefall Friday as projections showed Britain has voted to leave the European Union.
Sterling crashed more than nine percent to $1.3305, its weakest level since 1985, while the greenback itself slumped below 100 yen for the first time in two-and-a-half years as traders fled to safety.
The pound had earlier topped $1.50 following predictions the “remain” group would win but as the Brexit camp posted victories around the country, traders stampeded to put in sell orders.
The Conservative government of Prime Minister David Cameron, who campaigned for Britain to remain, warned in a report prior to Thursday’s vote (23 June) that it could take more than a decade for the UK to negotiate both an exit from the bloc and new international trade deals.
The report said Britain now faces “a long period of uncertainty” that could last a decade, with heavy consequences for British businesses, trade and inward investment.
Campaigners and supporters of Brexit downplayed this and many other warnings on the economic fallout of Britain’s departure from the bloc.
Nevertheless, the World Trade Organization has predicted that British exporters risk an extra £5.6 billion ($8.2 billion, 7.2 billion euros) of extra annual customs duties following Brexit.
Whether these are lifted during Britain’s period of transition remains to be seen, while the country’s banking and car manufacturing sectors have made it clear that jobs would have to be relocated abroad because of Thursday’s outcome.
“There are a number of large companies that say they are using the UK as a gateway to Europe and a number of companies have said that they would relocate their headquarters in the event of a Brexit — moving out of London to other financial centres in Europe,” said Scott Corfe, a director at the independent Centre for Economics and Business Research.
Following a decision to leave, Britain’s immigration landscape would also change as fewer people from the EU enter the country to work — another factor which risks impacting on UK economic growth.
The International Monetary Fund last week argued that “while there is much uncertainty about the precise economic effects of an exit from the EU, they are likely negative and substantial”.
In the worst-case scenario, the economy could sink into recession next year and overall economic output would be 5.6 percent lower than otherwise forecast by 2019, with unemployment rising back above six percent from 5.0 percent currently.
Experts have warned also of tumbling tax receipts and of Britain potentially losing its AAA credit ratings — affecting the amount of money it can borrow on markets at a time when it is still slashing state spending under a severe austerity programme triggered by the 2008 global financial crisis.