The United Kingdom (UK) voted yesterday 51.9% to 48.1% in favor of leaving the European Union (EU). We wanted to provide some clarity on what this move entails and some of the potential implications.
The EU is a group of 28 countries (which in time could be 27) that abide by similar laws in an effort to create unity among European Nations. The total output of the EU (measured by GDP) is about the same size as the United States. Some of the EU’s core principles are the free flow of goods and services (meaning less taxes and fees on inter-EU trade), and freedom of movement for workers (immigration), and capital.
Here are some facts about the UK in comparison to the EU:
- Population: 64 million (12.5% of European Union population)
- 2nd largest country in the EU (behind Germany and similar to France)
- Economy: 5th largest in the world
- GDP: $2.8 trillion (about 3.9% of the world’s GDP)
In time, this move could give the UK more flexibility to manage its trade agreements and their negotiating power for Britain. They also could be less limited in how they want to tackle their immigration and refugee policies. For the short term, nothing will change. In fact, David Cameron, the British Prime Minister who has offered his resignation now that the UK is moving in a different direction gave the following statement: “I would also reassure Brits living in European countries, and European citizens living here [UK] that there will be no immediate changes in your circumstances. There will be no initial changes in the way our people can travel, in the way our goods can move, or the way our services can be sold.” --Source: Yahoo Finance
Over the past week, market analysts expected the UK to remain. Obviously they were wrong, and markets are compensating. But rather than join the reactionary group of short-term traders, investors should consider the long-term implications of a political adjustment.