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Can the UK Economically Weather a Long Brexit?

GBP Falters as Uncertainty Thrashes European Markets
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November 7, 2016 By: , No Comments

Prime Minister Theresa May is in a quandary. She has to decide between a hard Brexit and a soft Brexit. Presently, pundits are uncertain what revenue she wishes to pursue vis-a-vis Britain’s relationship with the European Union. There is only one of two possible options: a clean break from the EU or close associations with the EU. The preferred alternative is one which sees little disruptive activity to economic and political alliances between Britain and its European trading partners. The GBP, the FTSE 100 index, the FTSE 250 and European bourses will react favourably to the alternative with less volatility. Recently, the British High Court dashed Theresa May’s hopes of quickly invoking article 50 of the Lisbon Treaty. The High Court announced that the Prime Minister would have to put the issue to a vote with members of Parliament. British politicians are largely opposed to the concept of a Brexit, but their constituents voted for it.

The Brexit Dilemma: A Doomsday Delivery?

If Britain is to quit the European Union, Theresa May prefers that it be a long Brexit. In other words, she wants the process to drag out for as long as possible without disrupting the economy and the currency too adversely. There is no doubt that a rapid Brexit will plunge the GBP into chaos and drag the FTSE 250 index down with it. The FTSE 100 index on the other hand will likely rise with a weaker sterling. Prime Minister May will want to get the Brexit issue underway before the election taking place in 2020. But the problem for the Prime Minister is that if anything untoward happens with the British economy, the government will be blamed for exacerbating the situation. May prefers a long period of transition of approximately 5 years. This would secure her tenure as prime minister, and likely pass the buck onto the next candidate. The extrication period from the European Union is highly complex and it involves the severing of ties across the spectrum. Many of the relationships between Britain and her trading partners are decades in the making. While the High Court ruled against May’s authority, the Supreme Court may rule against the High Court.

Will a Supreme Court ruling upend the GBPs progress?

Prior to the case being forwarded to the Supreme Court for a ruling, it would be wise for the PM to schedule a debate on the matter. The government does not know how it will approach the unfathomable issues before it. The single most important issue is the relationship between the UK and the EU as a whole. How will Britain fair vis-a-vis boarders, customs union issues, trade, political relationships and the like? The complex integration between Britain and the European Union is inexplicable, given that there has been a meshing of cultures, politics and money. Investors are cautiously eyeing Prime Minister Theresa May’s decision-making processes and that of the judiciary. The voters were not concerned with the consequences or the manner in which a Brexit would be affected. They simply wanted to protect their borders and bring control back to London. The politicians are left with the unenviable task of creating a soft landing for the thorniest issue to ever face Britain and the European Union. Presently, 27 other European Union states will be heavily impacted by the decisions taken by Prime Minister May. The GBP has rallied in the short-term, but the Supreme Court may upend the progress in that regard.

 

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Brett Chatz

About Brett Chatz

Brett Chatz is a graduate of the University of South Africa, and holds a Bachelor of Commerce degree, with Economics and Strategic management as his major subjects. Nowadays Brett contributes from his vast expertise in online trading for spreadbettingreview.co.uk.

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