London, England.
On June 23rd the British people voted in favor of leaving the European Union. Economists warned that leaving would cause economic destruction equivalent to the 2008 Financial Crisis. While it is still too early to tell, the current market conditions are telling a different story. Major indices across the world such as the S&P 500 and FTSE 100 are reaching new highs as I write this. This could change any day though given the plethora of unanswered questions and decisions left to be made. The only thing we know for certain is that Prime Minister, Theresa May, will decide when to trigger Article 50 and formally exit the European Union. Beyond the gloomy doomsday scenarios in Britain’s future are opportunities for the economy to thrive outside the EU.
Sovereignty
The European Union, on the surface, is the embodiment of stability and economic growth. As a whole it is the world’s largest economy in terms of GDP, even bigger than the United States. However, the EU has transformed beyond a free trade zone that needs to be fixed. Sitting atop Brussels is a bureaucratic layer of government that introduces legislations at the state level.
This has created a regulatory burden that has inhibited growth across its member states. Many regulations are self-executed including costly ones involving labor laws, financial institutions and technology. Leaving the EU presents Britain with an opportunity to implement a political and democratic framework tailored to its needs. Throughout history less regulated economies have grown faster than heavily regulated ones.
Trade
Leaving the single market is troubling only if Britain and the EU can’t come to an agreement. It’s difficult to imagine that being the case considering how important both sides are to the global economy. Britain is the sixth largest economy in the world and one of Europe’s largest trading partners. Europe simply can’t abandon them to prove a point or spite the British people. Britain, on the other hand, is now positioned to cut its own trade deals outside of Europe. It’s entirely possible that Britain becomes the new trade center of the world, signing deals with the United States, Asia and Europe.
Immigration
Immigration was the primary focus of leave campaigners since the idea of Brexit took hold early this year. Some of it was driven by racism, but that didn’t tell the whole story. The unilateral free movement of people has left England overcrowded. Prior to the vote, 3 million non-British EU citizens were living in the U.K. while 1.3 million British expats were living in mainland.
This disparity has created multiple problems. NHS funds have deteriorated from the immigration glut which has started to cost the British people. The overflow has also spilled over to real estate. London is one of the most expensive cities in the world, on par with New York and San Francisco. Britain is now in a position to implement more stringent immigration laws, similar to the United States, and thereby make housing more affordable for its citizens.
Financial Markets
The Brexit vote clearly didn’t have the devastating impact that many experts predicted it would. Instead major indices around the world have surged well past their pre Brexit levels to reach new all-time highs. The FTSE 100 has steadily increased thanks to the steep declines in the Pound and Euro. The index consists of Britain’s 100 largest multinationals that are set to thrive from a weaker pound.
Currency weakness is typically a precursor to rising export volume, better corporate earnings and the start of a new bull market. Central banks often manipulate currency to jumpstart growth and the stimulate the markets (think quantitative easing). Britain is in desperate need of a fresh start after continually falling flat for the past 5 years.
Concluding Remarks
Even though Brexit was nearly a month ago, it is still too early to tell whether Britain is headed for a bull or bear economy. Based on the recent market trends and Britain’s new found ability to run a democracy with its own trade deals, it’s clear that Britain’s prospects are better without Europe.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
