The U.K's Brexit vote is controversial, and its perceived merit depends on political ideology. But regarding the objective economic data, it is becomingly increasingly safe to say that Brexit was a good thing for Britain.
Politics:
In mid-2016 few people thought Brexit would happen, and mainstream media sources predicted an economic Armageddon should the vote ever pass. Even the American president, Barrack Obama, chimed in, stating:
"Brexit would put the U.K At the back of the queue in future trade and political interactions. "
However, many things have changed since then. One of the most important changes is in American politics. Instead of the widely anticipated Hillary Clinton victory, the American people elected Donald Trump - an exceedingly pro-Brexit politician who considers UKIP's Nigel Farage an associate.
Instead of straining economic ties between Britain and the world's largest economy (as would have been the case under Hillary and Obama), Brexit is now more likely to give the United Kingdom the ability to negotiate trade one on one with the United States from a position of friendship instead of animosity.
Currency:
Brexit's implications on the British currency cannot be understated. Trillions in wealth vaporized overnight. But was the pound's fall actually a disaster?
Aside from the obvious benefits a cheap currency has toward reducing trade deficits, a low pound may have additional advantages: Cooling an overheating London property market without significantly reducing demand.
This correction will make housing for affordable and perhaps ease some of the pain of inflation. Speaking of inflation...
Inflation:
Inflation is supposed to be the biggest challenge faced by the U.K after Brexit. Inflation is predicted to occur because imports will become more expensive. But even through the U.K has not left the European Union yet, the pound has already declined. And imports have already become more expensive. The hyperinflation has not materialized.
According to the Economist UK:
"Aggregate inflation data has barely budged. Consumer inflation remains at just over 1 percent, a level well below the Bank of England’s 2 per cent target."
What does this mean? Well, it stands to follow that if prices of imports have gone up significantly while the price paid by consumers has not increased commensurately, then the main thing that changed was retail profit margins. Retailers are paying more for imports, but are not passing the cost to consumers. This phenomenon backs up the theory that the pound’s previous strength resulted from overvaluation.
An overvalued pound was giving British importers the ability to charge abnormally large markups on imported goods, thereby preventing any benefit from actually passing on to the consumer.
Conclusion
It turns out that Brexit will probably not be so bad after all. The vote, while polarizing to many, may give the U.K a stronger negotiating position with the Donald Trump Administration.
In addition, the pound's drop seems to have hurt retail profit margins instead of consumer wallets. It is possible that the pound was overvalued in the past and gave British retailers the ability to arbitrage imported goods for abnormally large profits.
All this being said Brexit won't be ALL good. The British banking sector is likely to suffer, and this may take away jobs and tax revenue from the economy.
The vote's social implications are good or bad depending on political ideology. Nevertheless, a growing economy tends to heal social wounds.
Politics:
In mid-2016 few people thought Brexit would happen, and mainstream media sources predicted an economic Armageddon should the vote ever pass. Even the American president, Barrack Obama, chimed in, stating:
"Brexit would put the U.K At the back of the queue in future trade and political interactions. "
However, many things have changed since then. One of the most important changes is in American politics. Instead of the widely anticipated Hillary Clinton victory, the American people elected Donald Trump - an exceedingly pro-Brexit politician who considers UKIP's Nigel Farage an associate.
Instead of straining economic ties between Britain and the world's largest economy (as would have been the case under Hillary and Obama), Brexit is now more likely to give the United Kingdom the ability to negotiate trade one on one with the United States from a position of friendship instead of animosity.
Currency:
Brexit's implications on the British currency cannot be understated. Trillions in wealth vaporized overnight. But was the pound's fall actually a disaster?
Aside from the obvious benefits a cheap currency has toward reducing trade deficits, a low pound may have additional advantages: Cooling an overheating London property market without significantly reducing demand.
This correction will make housing for affordable and perhaps ease some of the pain of inflation. Speaking of inflation...
Inflation:
Inflation is supposed to be the biggest challenge faced by the U.K after Brexit. Inflation is predicted to occur because imports will become more expensive. But even through the U.K has not left the European Union yet, the pound has already declined. And imports have already become more expensive. The hyperinflation has not materialized.
According to the Economist UK:
"Aggregate inflation data has barely budged. Consumer inflation remains at just over 1 percent, a level well below the Bank of England’s 2 per cent target."
What does this mean? Well, it stands to follow that if prices of imports have gone up significantly while the price paid by consumers has not increased commensurately, then the main thing that changed was retail profit margins. Retailers are paying more for imports, but are not passing the cost to consumers. This phenomenon backs up the theory that the pound’s previous strength resulted from overvaluation.
An overvalued pound was giving British importers the ability to charge abnormally large markups on imported goods, thereby preventing any benefit from actually passing on to the consumer.
Conclusion
It turns out that Brexit will probably not be so bad after all. The vote, while polarizing to many, may give the U.K a stronger negotiating position with the Donald Trump Administration.
In addition, the pound's drop seems to have hurt retail profit margins instead of consumer wallets. It is possible that the pound was overvalued in the past and gave British retailers the ability to arbitrage imported goods for abnormally large profits.
All this being said Brexit won't be ALL good. The British banking sector is likely to suffer, and this may take away jobs and tax revenue from the economy.
The vote's social implications are good or bad depending on political ideology. Nevertheless, a growing economy tends to heal social wounds.
