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Brexit: The Potential Implications

Published 05/26/2016, 02:23 AM
Updated 04/25/2018, 04:40 AM

Various polls and recent studies are coming up as the talk regarding the Brexit heightens. Concerns about economic stability, immigration cuts, austerity measures and political aspects are raised. As the views on the matter surround the region, the British pound remains supported and the euro holds flat.

After the statement of the Bank of England Governor Mark Carney that the bank can attain its monetary policy target regardless of the result of the EU referendum, the GDP/USD posted strength during the session. Nevertheless, Carney confirmed that Brexit may affect sterling, and consequently inflation, making it hard to let the interest rate low.

Mark Carney also said that the BoE will intervene once again in the European referendum debate just before the release of the final votes of the Britons, despite being accused of becoming politically involved in the EU referendum campaign.

Meanwhile, British Prime Minister David Cameron suggested that voting for Brexit is unpatriotic. Cameron told the members of his government that moving away from the European Union would be a sign of self-destruct for the United Kingdom. The prime minister added that the moral case of the referendum was not to leave the European Union.

Further, Cameron warned that if the country eventually chooses to side for Brexit, the fee for family summer holidays to the Mediterranean as well as other famous Europe destinations may jump to £230 or 336.98 US dollars.

He also agreed with the analysis of the Treasury that after leaving the EU, the value of the pound will decline and the payment for flights, meals abroad and hotel accommodation will ultimately increase.

Aside from the minister, the Institute for Fiscal Studies notified the public that leaving the EU might push the ministers to prolong the austerity procedures for almost two years to attain a budget surplus. The Britain’s leading tax and spending thinktank explained that the low GDP growth and extra borrowing costs might take between £20bn to £40bn in the finances of the government four years from now.

Thus ministers will have a hard time to balance the books before 2022, two years after knocking a hole in the government finances.

On the other hand, Andrea Leadsom, the energy minister, said that many of the studies are based on entirely negative assumptions about the economy and the future decisions a UK government outside the EU would make, but ignore the pressing need of EU countries to continue trading with the UK.

A month ago, the energy minister told the media that the Treasury was publishing unfair and biased effect of Britain leaving the EU. She argued that it was only looking at one issue, which is their thesis on what happens if Britain leaves. “A Treasury report that is a genuine choice for the people should look at the impact if we remain” she ended.

In the defense of IFS, Director Paul Johnson clarified that their estimates only suggests the overall effect of Brexit would be to damage the public finances, and that dealing with the public finance effect would require at least an additional one or two years of ‘austerity’ – spending cuts or tax rises – at the same rate as we have experienced recently to get the public finances back to balance.

Another study from the National Institute of Economic and Social Research suggested that lesser immigration could be one of the results of a vote to leave the Europen Union. That leaves the economy of Great Britain narrower and the citizens could end up poorer. The report reiterated that lower migration has an overall negative effect on the economy.

The referendum debate has been depressing in general. However, what Britain needs is a long-term plan to keep up the recent development. The effect on Britain leaving the European Union still lies on the hands of the authorities. Surely, there will be questions along the way, but Britons can only wait for now.

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