As the June 23rd EU referendum approaches, debate over renouncing the UK’s European Union membership is heating up. David Cameron, Prime Minister of the UK, has said that a Brexit would be like putting “a bomb under our economy”. Former London mayor Boris Johnson, on the other hand, argues that Britain has to take back control of its own economy and separate itself from the EU.
The Conservative Party, and all of the UK for that matter, is divided over this issue. According to the weekly ICM poll, the United Kingdom is now favoring a Brexit, with 48% favoring a “Leave” vote, and 43% voting to “Remain”. There are several economic repercussions as a result of staying in the EU or leaving it. Some of the most important issues include trade, immigration, and the costs associated with being an EU member.
Immigration
Immigration is a heavily debated reason for why many want to break away from the EU. Immigration to the UK is well over the government’s target to bring it to below 100,000. Current migration is running at over 300,000 per year, and the “Leave” side argues that public services are under pressure to provide for the growing population.
EU members’ citizens are allowed to live in any member country, so the UK has no real say with regards to limiting how many people can come in. According to recent data, about half of immigration into the UK comes from EU nations. The “Remain” side argues that immigrants pay more in taxes, and that this offsets any burden they pose to the sustainability of public services. This side also argues that immigration is beneficial to the United Kingdom’s economy, as the mobility of the workforce brings in jobs that the UK needs.
Membership Cost
“Leavers” argue that over 1 billion pounds are spent every month for being EU members, and that these funds can be allocated to address other economic concerns. “Remainers”, on the other hand, argue that the benefits outweigh the costs, since close to half of all of Britain’s trade is with the EU. One benefit which is unique to the UK is the fact that it has its own currency, unlike other EU members. This could reduce the risk that comes with being exposed to the Euro, a currency which has severely depreciated in recent history. The “Remain” side also argues that the UK would still have to pay after a Brexit by contributing towards the EU budget so that it can gain access to the European market.
Trade
This may be the most important factor to assess when deciding whether or not the UK should stay in the EU. According to The World Bank, the United Kingdom’s exports account for about 28.4% of the region’s GDP. A vote to leave could result in more tariffs between the EU and UK, and this would likely slow down trade between the two large economies. Some economists are proposing that the UK scrap its tariffs so that trade deals with the EU can resume. WTO (World Trade Organization) Director General Roberto Asevedo doesn’t believe that this model is feasible because he hasn’t “seen a true free trader on this real earth yet”.
If a Brexit comes to fruition, there could be broader consequences, such as contributing towards a global economic slowdown. It should be noted that close to half of all UK exports go to the EU. The United Kingdom also imports more from the EU than it exports. A Brexit could have some undesirable consequences, since the relationship between the two economies seem to have been mutual on the trades front.
Boris Johnson and other “Leavers” argue that the UK could attain free trade deals with China and the US, but that the European commission is in charge of such negotiations. Members of the EU cannot engage in trade deals with other nations because the EU as a whole takes the lead with negotiating. In other words, no EU member will have access to unique trade deals with other nations. Boris is confident in the UK’s ability to achieve better trade deals, and he sees the EU membership as a barrier which prevents the UK from realizing its trade potential.
Bottom Line:
No matter what side you are on in this debate, there is no denying that a Brexit will have consequences that no one can accurately predict. This is because the global economy is becoming increasingly integrated, and a ripple effect from a Brexit could be nearly impossible to quantify. The upcoming EU referendum has the potential to have a major impact on where the global economy goes from here, so for the sake of stability, it may be better to remain in the EU rather than to rock the global boat.
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The 3 Largest Issues Surrounding the UK's Potential Brexit
As the June 23rd EU referendum approaches, debate over renouncing the UK’s European Union membership is heating up. David Cameron, Prime Minister of the UK, has said that a Brexit would be like putting “a bomb under our economy”. Former London mayor Boris Johnson, on the other hand, argues that Britain has to take back control of its own economy and separate itself from the EU.
The Conservative Party, and all of the UK for that matter, is divided over this issue. According to the weekly ICM poll, the United Kingdom is now favoring a Brexit, with 48% favoring a “Leave” vote, and 43% voting to “Remain”. There are several economic repercussions as a result of staying in the EU or leaving it. Some of the most important issues include trade, immigration, and the costs associated with being an EU member.
Immigration
Immigration is a heavily debated reason for why many want to break away from the EU. Immigration to the UK is well over the government’s target to bring it to below 100,000. Current migration is running at over 300,000 per year, and the “Leave” side argues that public services are under pressure to provide for the growing population.
EU members’ citizens are allowed to live in any member country, so the UK has no real say with regards to limiting how many people can come in. According to recent data, about half of immigration into the UK comes from EU nations. The “Remain” side argues that immigrants pay more in taxes, and that this offsets any burden they pose to the sustainability of public services. This side also argues that immigration is beneficial to the United Kingdom’s economy, as the mobility of the workforce brings in jobs that the UK needs.
Membership Cost
“Leavers” argue that over 1 billion pounds are spent every month for being EU members, and that these funds can be allocated to address other economic concerns. “Remainers”, on the other hand, argue that the benefits outweigh the costs, since close to half of all of Britain’s trade is with the EU. One benefit which is unique to the UK is the fact that it has its own currency, unlike other EU members. This could reduce the risk that comes with being exposed to the Euro, a currency which has severely depreciated in recent history. The “Remain” side also argues that the UK would still have to pay after a Brexit by contributing towards the EU budget so that it can gain access to the European market.
Trade
This may be the most important factor to assess when deciding whether or not the UK should stay in the EU. According to The World Bank, the United Kingdom’s exports account for about 28.4% of the region’s GDP. A vote to leave could result in more tariffs between the EU and UK, and this would likely slow down trade between the two large economies. Some economists are proposing that the UK scrap its tariffs so that trade deals with the EU can resume. WTO (World Trade Organization) Director General Roberto Asevedo doesn’t believe that this model is feasible because he hasn’t “seen a true free trader on this real earth yet”.
If a Brexit comes to fruition, there could be broader consequences, such as contributing towards a global economic slowdown. It should be noted that close to half of all UK exports go to the EU. The United Kingdom also imports more from the EU than it exports. A Brexit could have some undesirable consequences, since the relationship between the two economies seem to have been mutual on the trades front.
Boris Johnson and other “Leavers” argue that the UK could attain free trade deals with China and the US, but that the European commission is in charge of such negotiations. Members of the EU cannot engage in trade deals with other nations because the EU as a whole takes the lead with negotiating. In other words, no EU member will have access to unique trade deals with other nations. Boris is confident in the UK’s ability to achieve better trade deals, and he sees the EU membership as a barrier which prevents the UK from realizing its trade potential.
Bottom Line:
No matter what side you are on in this debate, there is no denying that a Brexit will have consequences that no one can accurately predict. This is because the global economy is becoming increasingly integrated, and a ripple effect from a Brexit could be nearly impossible to quantify. The upcoming EU referendum has the potential to have a major impact on where the global economy goes from here, so for the sake of stability, it may be better to remain in the EU rather than to rock the global boat.
The Zacks Rank is a truly marvelous trading tool. Our ranking system has beaten the S&P 500, yielding an average return of 25% per year for the last 29 years! Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>