The decision to leave the EU was and still is one of the most controversial topics in British history, and so over the coming articles, I will explore the different consequences, future prospects and potential benefits (if any). Here, I provide a brief introduction to the matter and the initial shock to the UK economy that followed.
The UK market has been growing steadily from the global financial crisis of 2008, which was caused by a housing market failure in the United States, with minor fluctuations, until 2016, where it took severe damage due to the EU referendum and the announcement that Brexit had been confirmed. It was official that the UK planned on leaving the European Union. This caused a chain reaction of possible adverse impacts that resulted in a market shock in the UK. We will not be using past tense as Brexit negotiations being drawn out cushioned these impacts, but the market shock still occurred when Brexit was announced due to fear of these potential risks. This market shock can be evidenced in two different ways. The first was a drop of 500 points in the FTSE index on 24th June 2016. Considering that the results of the EU referendum were revealed the day before on 23rd July 2016, it is incredibly likely that the events are related, as many investors would have negatively reacted to the news and feared the worst, which caused them to short stock in the index and as a result, a market shock ensued.
Alternatively, the market shock could be identified using the value of the British pound sterling, which is the national currency of the UK and is often the most valuable currency in the world that is widely used, and the fifth most valuable currency overall. It is also the oldest currency that is still in use to date, going back 1200 years, introduced in the 8th century and is also the 4th most traded currency globally, accounting for around 12.8% of daily trades on the foreign exchange market[1]. It is, therefore, an excellent indicator of the UK’s economic growth and progress, as any financial disaster or boom that occurs in the UK would be reflected in the value of this currency, which would obviously fall or rise accordingly, as it is based upon trade with other countries using this currency and exchanging it with other currencies that determine its value. Therefore, when the pound’s value falls, it signals that the UK economy is declining or experiencing a market crash or shock. This is precisely what happened when the EU referendum results were announced. This can be easily exemplified by comparing the value of the British pound sterling only seven months apart, from 10th June 2016 to 30th December 2016. Considering that the results for the referendum were announced on 23rd June that same year, this will be a good indicator of the state of the economy just before the announcement and the consequences on economic growth that ensued afterwards. On 10th June, the pound’s value was estimated at $1.43 per £1. Still, this value fell to $1.23 per £1 by 30th December – a fall of just under 14%, suggesting that the announcement of Brexit caused panic, which in turn caused the pound to decrease in value and economic decline to occur. This observation is reported by a report by IBISWorld[2], which stated that ‘In June 2016, the United Kingdom voted to exit the European Union.
Following the vote, the sterling depreciated sharply against many major global currencies, including the USD, amid prevalent uncertainty which had become commonplace across currency markets overnight.’ It continued to compare it to historical data, explaining that ‘this was the first time the GBP-USD exchange rate had fallen below US$1.4000 over a given fiscal year on average since 1985-86 (£1 = US$1.3775).’ It may seem apparent that Brexit alone caused a sharp economic decline for the UK, but this may not be the complete image. If later data is analysed, it can be noticed that the value of the pound returns to $1.41 per £1, even amidst the coronavirus pandemic, suggesting that Brexit was not as detrimental as it may have been portrayed. Despite this, it still has various impacts, ranging from economic, political and even social, which I will continue to explore throughout the coming articles.
[1] Data obtained from https://www.cmcmarkets.com/en-gb/learn-forex/16-strongest-currencies-in-the-world
[2] Report quotations and associated data obtained from https://www.ibisworld.com/uk/bed/exchange-rate-us-dollar-per-pound/44014/
Economics 101 
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