Brexit and the British economy: A nation in shambles.

It has been two weeks since Britain voted to leave the European Union; a historic decision that will certainly provide an impetus to major secession movements (Catalonia, Scotland) across the world. And even though a post-Brexit overview of the UK’s economy belies the backlash predicted by many, an in-depth analysis suggests nothing but the grave aftermath as anticipated.

1. Financial markets

The performance of FTSE 100 and FTSE 250 indexes in the post-Brexit market is a far cry from the receding growth experienced in the other areas of the economy. After weathering an initial drop, share prices of blue chip FTSE 100 companies are higher than on June 23rd (the date of the referendum).

Although it would serve well to consider the fact that the index comprises of companies with worldwide operations (Mexican mining company Fresnillo PLC, Chilean conglomerate Antofagasta PLC, ubiquitous consumer goods company Unilever) and well over half of their revenue streams from outside the UK. With the companies registering their profits in ‘quids’, the post-Brexit depreciation that has plagued the pound further pushes the nominal profit value, recording a larger sterling share price.

Another indicator of the post-referendum infamy is the rise in prices of government bonds. Financial uncertainty prompts investors to offload risk-prone assets such as shares and diversify to safer avenues of investment like government bonds (especially the ones known as gilts paying a bi-annual fixed coupon rate). When these gilts record a price rise, their interest rate simultaneously decreases; permitting the government to borrow larger sums at an inexpensive rate.

A similar pattern is also emerging in the banking sector, with Bank of England indicating an ephemeral interest rate cut could be possible in the near future; signifying a drop in mortgage interest payments. However, a lower interest rate also means a lower rate of return for the general public’s cash deposits in the banks.

2. Investment

Investment in the post Brexit UK is characterised by even the most irrational investor pulling out of the British economy with surprising alacrity. Investing in the UK provided a strong foothold for commencing investment in the EU single market.

In the post Brexit era even the UK could well be subjected to licenses and other regulations as it continues trade operations with the remaining 27 members of the EU, and with the 50 nations having preferential trade deals with the EU. And although UK is independently a member of the WTO, establishing trade agreements with the rest of the 161 members will be a mammoth negotiation process.

Such monumental changes have scared off investors and led to a sharp cleft in investment; subsequently pushing major governmental projects to the back burner, ranging from railway lines and nuclear power grids up North to building a new runway at the busiest international airport of the country.

3. Migration (and migration based PF returns)

A common grouse among Brexiteers has been about migrants (intra-EU migration) guzzling large swathes of public finances, while making proportionately undermining returns. Adding to their disenchantment is the fact that total EU emigration (from the UK) is relatively insignificant as compared to net EU immigration to the UK reaching a (second-placed) record high in 2015 — an estimated 333, 000. But the reality presents a warped picture, with a positive difference recorded between taxes and other contributions by migrants and the cost of public benefits and other services received by them.

According to 2013 estimates, UK occupied the 11th position with respect to fiscal impact of migration across OECD countries; with a higher fiscal estimate than the average impact across OECD countries (+0.35% of the GDP). Brexit has provided a viable solution to satiate the nationalistic fervours of anti-EU citizens; stop free movement of its erstwhile EU counterparts to the UK.

Although it is highly unlikely that Brexit will curb migration to desired levels; any developed country with a (comparatively) strong currency will always attract migration, be it intra-continental or intercontinental.

And with the value of the pound plummeting consistently, the UK will figure as an even more appealing destination for students pursuing higher education (if it wasn’t already one).

4. Currency

The pound has deteriorated at an alarming rate; the euro being almost on par with the imperial ‘quid’ stands testimony to that. Its standing against other currencies has dropped incessantly. The pound has dropped to an all-time low against the dollar; with such a drop last recorded in 1986.

Immediate repercussions are visible in foreign imports becoming expensive; made apparent by the pricing effect now prevalent in shops. Britons will even have to shell out more while holidaying abroad.

In the long term, fluctuations in minimum national wage amount to a question of ‘when’, and not ‘if’. Presently, the national minimum wage stands at €9.15 per hour, and any upward change seems implausible.