Which impact Brexit has on markets?
Last week, the UK exited the European Union and left many businesses in a state of panic and markets in uncertainty. The exact future is unclear, but that markets will be highly impacted is for sure.
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What is Brexit?
On January 31 2020 after 23:00 GMT, the United Kingdom stopped being a member of the European Union.
Immediately after Brexit day, the transition period started, which goes on until December 31 2020. In the transition period, the UK still follows the rules of the EU, while the two parties will negotiate about their future relationship.
What trade deals does the UK have?
The UK aims to achieve a trade deal with the European Union that builds on the current deal the EU has with Canada. While most of the tariffs on goods in this trade deal have been eliminated, services like banking are much more restricted.
The financial sector is crucial for the economy of the United Kingdom, which makes it very important to get a deal in this area. When the EU and UK won’t be able to agree on a trade deal before the transition period is over, the two countries will have to trade under WTO rules, which would mean applied tariffs to nearly all goods and full border checks.
Despite the promises of Johnson and Trump of a “massive trade deal”, the two countries are strongly divided by major issues and negotiating will turn out highly difficult.
While Trump aims to be reelected and Johnson is desperate to deliver some good news in the Brexit aftermath, a “Phase 1” trade deal between the two parties is likely to happen. The mini-deal could focus on service regulations, convergence on some products and financial services. Further was the UK able to continue some trade deals the EU closed while they were still a member.
Which industries are most impacted?
Brexit encountered most industries across the UK unprepared. To avoid a sudden drop in investment and revenue, most industries were pressured to rethink their future strategies quickly.
While recovery of most industries’ finances seems likely, the following sectors are at increased risk of facing financial difficulties:
Automotive industry
The sector struggles due to Brexit and the U.S.- China trade war added fear of a global market growth slowdown. Another factor that puts pressure on the automotive industry, is the planned ban of new petrol and diesel vehicle sales, starting in 2035.
Airline sector
Airlines based in the United Kingdom have to rethink their European routes, to stay in line with EU laws as well as recalculate fares and routes, considering possible visa costs for employees.
Pharmaceutical industry
Many UK-based pharmaceutical companies pursue business overseas, which could cause logistical issues in the long term.
Financial services sector
British banks were already hit hard by the leave vote of Brexit, when loans soared and investment banking slumped.
All sectors rely strongly on maintaining good relationships with the EU, to execute stable trade deals with European countries.
More information about Brexit head over to:
World Finance
