Trade knowledge / Update on the UK´s Economy Following Brexit
Date: 2016-09-05
Update on the UK´s Economy Following Brexit
On June 23rd, the United Kingdom made a monumental decision to exit the European Union. However, the magnitude of impact which the Brexit will have on the British economy remains uncertain. Following the vote, significant increases were predicted in the UK’s economic welfare and consumer confidence, although future statistics may indicate otherwise. After a week of collecting official data, the numbers forecast that consumers are spending more, the value of the pound has weakened, and tourism has increased in the UK. Simultaneously, interest rates have taken a historical cut, while inflation has begun to rise.
The Bank of England has since performed multiple tasks attempting to boost the economy of the UK. By cutting interest rates from 0.5% to 0.25%, the Bank of England hopes to influence banks contemplating lower interest rates on households and businesses, as well as encourage investment and spending. In addition to the cut in interest rates, following the vote, the value of sterling has dropped significantly. Just over a year ago, the pound was worth $1.57 against the dollar, whereas a new study reflects a current worth of $1.30. In one year it has dropped 14% against the euro. The significant 17% fall in currency coincides with increased tourism in the UK. Cheaper sterling has boosted the tourism sector, and a recent study shows there were 4.3% more flights booked to the UK than in the previous year. Tourism is a crucial component of the UK’s economy, as it is the UK’s seventh biggest export earner and third biggest employer.
Although the UK’s inflation rate of 0.6% remains relatively low, far below the Bank of England's targeted 2% rate, July marked the highest inflation rate level in 20 months. Economists warn of an impending increase in prices, an effect of the falling value of the pound. The drop in the UK currency paves the way for more expensive imports, which eventually results in a cost increase to consumers. The Bank of England predicts an inflation rate of 2.4% within the next two years.
Despite many uncertainties, it has been concluded the Brexit has drastically changed the UK’s economy, and will continue to do so in upcoming months.
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