Brexit’s Effect on the U.K. Economy

The day that England officially voted to leave the European Union was a day in which many were not only joyous but also terrified from the uncertainty that lay ahead.

This was the first time in the history of the European Union that a member country decided to voluntarily forfeit its membership, thus leading to much speculation as to what the after effects would be. Preliminary data suggests that these worries were well warranted, as it appears that the British economy is already reeling from the effects of withdrawing from the European Union.

While being a member of the EU doesn’t actually entitle a member country to economic benefits, what it does is provide security and stability for the stock market which then typically translates into economic growth. The trading markets thrive off of stability as it allows traders to accurately predict trends in the marketplace. When events such as Brexit occur, however, it removes any sense of predictability and causes the market to enter a state of panic.

Recent economic data shows that this is precisely what happened. Take a look at the chart below. It shows recent numbers coming out of the PMI or the Purchasing Managers’ Index. This index is useful in the sense that it helps track the level of business activity in a country on a macro level. Based on the numbers below, it shows that the level of activity in Britain has dropped substantially, to levels that were previously only seen during the global recession in 2008.

These numbers are based on compiled data from over 650 companies operating in Britain.

Chris Williamson, chief economist at IHS Markit, has said that “The only other times we have seen this index fall to these low levels, was the global financial crisis in 2008/9, the bursting of the dot-com bubble, and the 1998 Asian financial crisis.”

“The difference, this time, is that it is entirely home-grown, which suggest the impact could be greater on the UK economy than before.”

While this data undoubtedly shows an impact on the British economy, it is difficult to assess whether or not this trend will continue for months to come. It must be noted that this is only one month worth of data, so making grand assumptions about the economy years from now is a bit of a hyperbole.

In the next few months, it will be interesting track the development of the British economy as many are expecting it to continue to suffer from this relative slump. If this trend continues throughout the rest of the year and possibly next year, maybe the Brexiters will begin to regret their decision when their wallets are beginning to hurt.

Featured Image via Flickr/jeffdjevdet