Brexit’s Impact on Your Financial Investments: Are You Ready?

The future of Britain will be decided by Brexit’s result. On this day, UK voters will vote to decide if they want to exit the European Union (EU). Although, David Cameron claims that the deal he struck with EU leaders would give the UK “the best of both worlds”, the country remains mired in claims and counterclaims over the costs and benefits of leaving the EU. The most important question for the investors is, “How Britain’s exit (termed as Brexit) would impact their investments?” Whatever may be the result, it is better to be prepared in either case.

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Why Did the Possibility of Brexit Arise in the First Place?

David Cameron came to power in 2015 promising a referendum on EU membership. This was a tactic to alleviate the immense pressure from the pro-exit UK Independence party and from Eurosceptics in the ranks of his own party. When the Conservative party scored an absolute majority in the 2015 elections, referendum became inevitable. Apart from the political reason, the proponents of Britain’s exit also cite other issues like loss of jobs due to immigration, impact on trade due to the bureaucracy of EU, £13 billion paid to Brussels as the cost of EU membership and lack of freedom for member nations to frame their own economic policy. You might be thinking, you have already seen this in the case of Greece and Grexit, from where the term Brexit arose brexit millionaire reviews. But, will Britain really end its 37 years of association with the European Union?

What Are the Odds That Brexit Would Really Happen?

Let’s have a look at the numbers. If we have a look at the Financial Times poll tracker, 42% are in favor of Brexit whereas 44% are against it and the remaining 14% are undecided. This is a comprehensive view of all the polls conducted so far by various agencies like ICM, ORB, YouGov, TNS and others, with individual poll results varying on both sides. However, the polls have been wrong before in the 2015 electoral outcomes and a better indicator would be the betting odds. They have been more accurate in predicting the electoral outcomes as well as Scottish referendum. The best odds available at the time of writing are 11/4 that the UK stays in the EU and 2/1 that it leaves. This implies roughly a 31% chance of Brexit.

What Will Happen if the UK Votes for Brexit?

There is a lot of uncertainty over the impact of the UK leaving the EU. Experts are divided in their opinion over the pros and cons of the exit. The debate can be summarized under 5 major heads:

I Trade – Britain has a much larger share of EU in trade than otherwise. Official trade statistics show that 63% of Britain’s goods exports are linked to EU membership. These trade relations can be hampered in case of Brexit. However, proponents of Brexit state that a favorable trade agreement with EU can be reached even after the exit as both sides stand to benefit. Moreover, the separation will allow Britain to broker its own deals with non-EU countries. These non-EU countries would prefer easier and quicker decision making in a separate Britain as compared to the red tape and bureaucracy in EU.

II Cost of membership – The cost of membership to the European Union came to around £9 billion in 2015. This represents about 0.5% of UK’s GDP. However, as per the report from the Confederation of British Industry, the net direct economic benefit of membership is between £62 and £78 billion annually. But there are Eurosceptics like Tim Congdon, a member of the Treasury Panel in 1993-97, who suggests that if we take indirect costs like loss of jobs due to immigration, regulation and resource allocation into consideration, the total cost comes to 11% of GDP. So the debate is still on.

III Regulation – The argument by pro-exit camp is that the EU is mired in red tape and bureaucracy. Every decision is driven by lengthy negotiations and complex processes run out of Brussels. In fact, Open Europe has estimated that the top 100 EU regulations cost the UK £33 billion a year. However, these regulations would not vanish even in the case of an exit. Similar to the Norway model, the regulations would still apply for any trade agreement with the EU. Open Europe has estimated that 94% of these costs will still be retained.

IV Immigration – Another argument by the exit supporters is that there has been a significant increase in immigration from the EU, owing mostly to the expansion of EU from 15 to 27 countries. Workers from lower wage countries like Slovakia and Romania move to the UK in search of better-paying jobs. This has resulted in job losses for UK citizens and increased welfare cost for the government. Whereas those against the exit argue that immigration is both ways. If 2.4 million EU citizens have moved into the UK, then an estimated 2.2 million have moved out of the UK to other EU countries. Also, the unemployment in EU immigrants is lower than the average disputing the claims of increased welfare cost. UCL conducted a study of immigrants which established that they pay £20 billion net of benefits to the UK government.

V Investment – The UK is one of the largest recipients of EU’s FDI. This is due to multinational companies which set up their base in the UK, as it provides them a ‘passport to Europe’. When Britain leaves, these firms can consider relocation. In fact, Deutsche Bank recently mentioned that it would consider moving a part of its UK operations to Germany if Brexit happens. However, the counterview is that once separated from the quagmire of stifling regulations of the EU, the UK can be aggressive in terms of reduced corporate taxation, incentives, and a better business environment. CEO of Vanguard has remarked that he will continue to invest in Britain in the event of Brexit.