The current state of play in the UK parliament will be a disappointment to the vast majority of British citizens, who are against a hard Brexit. On April 12, 2019, the UK missed the second Brexit deadline, resulting in a long Brexit extension, likely till October 2019. By every indication, Prime Minister May might not be able to convince the UK parliament regarding the terms of her withdrawal agreement, leaving the fate of 1.3 million UK citizens residing in the EU in uncertainty. They will probably have less than a year to re-organise their lives, until December 2020, when the transition period formally ends.
A Change in Citizenship Laws
Over 900,000 British citizens hold dual-citizenship with another EU nation. Even if the UK has a hard Brexit, a complex net of citizenship and residency laws might help UK citizens living at home or abroad. A second UK passport is appealing to a nation where 16 million individuals voted to stay in the EU (roughly 48% of the voters). Whether obtained organically, ancestrally or financially, the number of British citizens opting for a second passport increased 159% in the year after the referendum in 2016. Ireland recorded a 497% increase in new citizenships of British people from 2014 to 2017, while Germany saw an increase of 835%.
End of Tariff-Free Trade Status
The EU accounts for 44% of all British exports. A hard Brexit will put an end to the UK’s tariff-free trade terms with EU member nations. Additional tariffs, ranging from 2% to 20%, increased cross-border checks, and a weaker Pound Sterling will increase the cost of exports and imports. The manufacturing sector will also take a heavy blow when raw material prices shoot up. This will be ultimately passed on to the consumer. As a result, food prices will increase, given that the UK is a huge importer of fresh fruits and vegetables via the EU. Food shortages could also occur due to customs delays.
Bidding on Public Contracts in EU Countries
Britain’s membership of GPA (a 47-member body under the WTO), which allowed it the right to bid for government procurement tenders in other member states at national and sub-national levels, would have lapsed immediately after Brexit. This would prevent British companies from bidding on contracts of goods, services and construction around the world, hurting the country’s export and industrial output, particularly in big markets like Turkey and Japan.
But, in a recent development, the UK signed a $1.7 trillion public procurement pact with the WTO (World Trade Organization) on February 2019. This might make up for 25% of the EU’s international public procurement market.
Consequences for Real Estate
One of the most significant aspects would be the city of London losing its position as one of the world’s prominent financial centres. The city might lose 10,000 banking jobs and 20,000 financial services roles, along with US$2.1 trillion worth of assets being moved out of the city. As EU-based financial institutions gradually move out of the UK, the impact will be felt on real estate prices. As a result of the lack of stability in the financial markets and volatility in foreign exchange rates, property prices will drop in the UK and EU. Secondary markets in the United States and other gateway cities will see a rise in the value of their real estate industry.
Implications for Foreign Direct Investment (FDI)
Britain’s attractiveness to foreign investors lies in the fact that it provides easy-access to the EU’s single-market regime, until Brexit. After that, higher trade costs with the EU will likely bring down FDI levels. A Brexit-induced decline in FDI could result in a 3.4% loss of real income, which stands at £2,200 of the GDP per household at present.
Restrictions on second UK passport laws following Brexit would also lead to a lowering of FDI in the UK’s financial services industry, its biggest recipient. Will striking a comprehensive trade deal with Switzerland solve this? Not really.
Impact on the British Pound
A sharp fall in the value of the British pound was seen in the immediate aftermath of the Brexit referendum. Domestic economic and political stability always makes exchange rates volatile, which is likely to also be the case as the talks progress through an uncertain route. Since 2016, the Pound Sterling has suffered, taking a toll on business costs, rent and even holiday expenses abroad. s
Many factors will have a say on how the currency fares, of which the most important is the Bank of England’s stance on the country’s monetary policy. Experts are not expecting an interest rate hike until August 2019. Another factor is the current account deficit of the UK, on account of tariffs that will make exports costlier.
In the coming months, we will hopefully have a clearer picture of what Brexit means for both UK and EU citizens. There might be a possibility of a second referendum, given Labour MPs signal towards potential approval of Prime Minister May’s deal only if a public vote is held.
On the whole, Britain’s inability to reach a strategic agreement, along with the EU’s reluctance to sever ties with it, has opened up a lot of alternate scenarios. Now, it is a waiting game for the public.