Brexit and EU trade relations have been reshaped thoroughly and widely implicated for various financial assets and markets on both sides.
Brexit And EU: Need To Know
The United Kingdom’s decision to leave the European Union formally took place on January 31, 2020, with the transition period concluding on December 31 of that year. The roots of Brexit can be traced back to a 2016 referendum where 52% of British voters chose to exit the EU. Various factors, including traditional concerns, immigration policies, and economic independence, drove Brexit.
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Trade between the UK and the EU has historically been crucial. Before Brexit, the UK was heavily integrated with the EU’s single market and customs union. It allowed goods to flow freely across borders. The Brexit referendum introduced uncertainty regarding future trade relations and the risk of a “no-deal” scenario, which would have resulted in severe disruptions. However, a last-minute deal was reached, known as the Trade and Cooperation Agreement (TCA), which minimized disruptions by establishing tariff-free trade for most goods.
Which Assets Are Impacted By Brexit?
First and foremost, Brexit heavily influences the national currency. The British Pound historically stands as a significant currency, and not only historically, London is one of the most prominent financial centers in the world. That’s why traders should pay attention to British trade regulations while exploring forex pairs such as GBPUSD or EURGBP.
Even though Great Britain is not part of the European Union, its relationships with the European market are still robust. That’s why Brexit still brings uncertainty to European indices like the Euro STOXX50 and DAX40. They experienced volatility due to fears of economic fragmentation and supply chain disruptions. While sectors like manufacturing and automotive were hit hardest, markets adjusted as businesses adapted to new trade regulations.
British equities should also be mentioned in that conversation. They faced turbulence due to Brexit uncertainty, particularly in sectors like financials and consumer goods. The FTSE100 initially declined but later rebounded as firms realigned strategies. However, small and mid-cap companies exposed to the Brexit and EU market remain more vulnerable new tariffs and regulations.
Brexit – EU Trade Tariffs
According to the analysis presented by KPMG, there has been a significant increase in trade bureaucracy between Great Britain and the European Union. Even with TCA, trade between both powerhouses can be challenging. Instead of one clear set of customs, now every member country has its own red tape regarding British trade. Interestingly, the bureaucracy currently goes one way – the goods exported from the EU to Great Britain haven’t been included with additional checks yet.
The Brexit and EU impact on Great Britain is even more noticeable due to COVID-19. Lockdowns and restrictions led to significant growth of exports between the EU members. As seen in the analysis, the EU-EU exports increased during the last couple of years, especially in comparison to the British exports to European countries.
