United Kingdom European Union membership referendum (BREXIT)

On June 23rd 2016, the people of the United Kingdom of Great Britain and Northern Ireland have voted against the UK remaining part of the European Union, by 51.9%. According to Article 50 of the Treaty of Lisbon (2009), this means that: The government of the UK must formally notify the European Council that their country wishes to leave the European Union.

Interestingly, this is the second time U.K. has sought a referendum on this issue. In 1975 Prime Minister Harold Wilson called a referendum after considerable opposition rose from within the country on U.K. staying with the European Economic Community, the precursor of the EU. With 67 per cent of those who voted preferring to 'Remain', U.K. stayed on.

However it is not as simple as it looks like, there is no precedent of such a big country leaving the EU (only precedents are for regions, e.g. Greenland in 1985), and the outcome of the discussions is therefore unpredictable. The outcome of this referendum has triggered a period of high uncertainty. UK is a part of so many other integratel unions / council / Area which will add more complexity in the Brexit in piece or in totality.

Brexit triggers a 2-year period during which the terms of the withdrawal are discussed, if no agreement is reached in these 2 years, either:

·       The period is extended (required unanimity of remaining EU members), or

·       All EU treaties, laws and regulations cease to apply to the UK

Thus on the next day June 24th, the PRA has asked for T+1 daily liquidity monitoring of HBEU, HBFR, HBUS and AMH until further notice. This stopped after 4 weeks for all sites except HBEU, which is now requiring daily reporting at T+2.

However many people in Britain believe that EU is making inroads into British sovereignty and the EU has changed since the time it was formed and that it was impacting daily life. The primary reason is the pro-EU members argue that EU migrants contribute more to the national economy than they take out.

What is UK’s history with the EU ?

European Union (EU) was originally formed with six nations in 1957. Today, it is a gigantic transnational entity of 28 countries, including the U.K., which joined only in 1973. Though part of EU, Britain has traditionally had a 'eurosceptic' stand. It continues to use the Pound as its currency, while most EU nations have moved to Euro. Neither does it participate in the Schengen border-free zone, which allows passport-free travel in EU. 

Brexit impact

There was a dramatic fall in the value of the pound against the dollar and in share prices in the immediate aftermath of the Brexit vote. Britain also lost its top AAA credit rating, meaning the cost of government borrowing will be higher.

But a month after the vote share prices in the UK had recovered, with the FTSE 100 trading higher than before the referendum. The broader FTSE 250 index, which includes more British-based businesses, remains about 1.5% lower than before the Brexit vote.

Retail sales figures for July were up on the same period last year, defying predictions of a post-Brexit slump. And UK industrial output grew at the fastest rate for 17 years in the April-to-June quarter, up 2.1% compared with the first quarter of the year. The Office for National Statistics said "very few" respondents had been affected by the uncertainty from the referendum vote.

However, the Bank of England has announced additional measures to stimulate the UK economy amid uncertainty over Brexit and worries about productivity and economic growth, cutting interest rates from 0.5% to 0.25% - a record low and the first cut since 2009. Another key plank of its stimulus policy - buying up UK government bonds - has run into trouble after the Bank failed to find enough sellers of long-dated government debt.

The rate cut followed figures showing the UK economy contracting at its fastest rate since the financial crisis. The Markit/CIPS purchasing managers' index - a closely-watched economic barometer - showed activity in the UK's dominant services sector saw its sharpest fall in seven years, from 52.3 in June to 47.4 in July, suggesting a downturn is on its way.

Should India worry about it?

Though India has refrained from officially commenting on the crucial June 23 referendum, it remains deeply vested in the outcome. The first concerns the welfare of a nearly three-million strong diaspora of Indian-origin U.K. citizens, while the second concerns the interests of a large moving population of Indians who come to Britain ever year as tourists, business people, professionals, students, spouses, parents and relatives.

There are 800 Indian companies in the UK — more than the combined number in the rest of Europe. Britain's exit from EU may affect Indian companies’ appetite for investing in the U.K., particularly those seeking access to the European market.

However, there is a tone of optimism in the Indian circles. An SBI report, for instance, mentions, "This referendum will have geopolitical implications and will affect the relation of the rest of the world with Europe. But, our take is that though such an exit brings up a lot of uncertainty within Europe, it definitely opens up opportunities for India."

In last I would like to say only that those who argue that these risks are surmountable, as the UK would be able to negotiate favorably trade terms and concessions, vastly underestimate the difficulty of doing so. Even discounting the likely political opposition from our former EU partners, it would be practically impossible to replace all existing agreements quickly and favorably. Experts, including the director-general of the World Trade Organisation (WTO) have been clear that any negotiation could take up to 15 years.