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UK is not afraid of BREXIT?

Against the backdrop of difficult negotiations on how the divorce of the once-lasting marriage between the EU and the UK will take place, there may be a misleading impression that Europe is a victim in this situation, and Boris Johnson arrogantly and inexorably leads Britain away from the “decaying and old” Europe in a kind of "bright future." However, according to the FortFS analytical department, in any situation, it is Britain that is the victim, and a “bright future” is fraught with very specific economic problems. So, why is BREXIT bad for the UK and who really will be the victim?

 

First of all, we must note that according to various sources, the EU share in the UK trade turnover is more than 63%. Consequently, the restrictions on trade that will inevitably follow an unsuccessful "divorce" will significantly affect the UK economy. Some experts estimate that tough BREXIT will undermine UK GDP by more than 5 percent in the first decade! Such a scenario will definitely have a negative impact on the value of the British currency in a strategic perspective.

 

Secondly, EU risks are much more modest. In case of a hard exit and breaking of existing trade relations with the UK, EU losses will amount to approximately 0.7% of current GDP, which is almost 7 times lower than that of the UK! However, even in the case of soft BREXIT, trade agreements will continue to work perfectly, but customs regulations will begin to work against the UK. So, for example, tariffs on British imports to Europe will definitely increase. Consequently, other duties for non-EU countries will begin to play against the UK economy. Thus, over the next few years, the UK’s GDP will decrease by about 3 percent, while Europe’s GDP will decrease by only 0.5 percent. Again, the difference is 6 times! Perhaps these calculations will help experienced FOREX traders earn on the dynamics of the EUR / GBP pair.

 

Thirdly, any attempt to conclude a similar agreement with the United States (some experts believe that such a scenario is possible) also does not compensate for the economic losses of Great Britain. The United States is in a phase of a trade war with both China and Europe, and this means that the chances of a profitable deal for the UK are negligible, because the Trump administration will do its best to compensate the loss from trade with China, and Europe by the expansion of trade with the UK. So, we can assume that for the UK it will be extremely difficult to find a good compromise in trade relations with the United States.

 

Thus, mathematical models so far indicate the inevitable serious economic losses of the UK and much smaller losses of the EU, with any option of BREXIT.

To avoid negative consequences, the UK will have to enter into many additional trade agreements with the EU, similar to how it works with Norway. This means that Europe still has a lot of strong cards to play and the UK should not slam the door loudly.

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