The United Kingdom has decided to leave the European Union (EU), after a nation-wide referendum held on Thursday voted in favour of an exit, which has come to be known as “Brexit”.
Nearly 52 per cent of voters chose to leave, guaranteeing a win for Brexit.
The United Kingdom joined the EU in 1973 under a conservative government headed by Prime Minister Edward Heath.
Despite being a member of the European Union, the UK never adopted the euro as currency, but continued to use the British pound. The country still requires visitors to obtain a separate visa to enter it, as entry to Britain is not included in the Schengen visa, which grants travellers entry to many Eurozone countries.
The EU began with eight member countries and has now expanded to 28. There are more countries on the waiting list to gain membership.
As the results started to become clear overnight, sterling started a free fall reaching historic lows against the US dollar, and hammering equities around the world as markets see global confidence take a blow.
At the time of writing, the pound to euro exchange rate is down 6.4 per cent, and the pound to dollar exchange rate is down 9.8 per cent, according to poundsterlinglive.com.
The pound was already faring weaker than other high-volume currencies leading up to the vote, as experts and analysts observed and forecasted potential repercussions. Global stock markets and currencies, not just these of the UK but the world , are the first to get affected.
The impact though might not be as immediate in the Middle East reign, experts forecast.
“In spite of all the noise and media attention, I think the impact of a Brexit on the Middle East market may not be as immediate or as drastic as other regions, unless there is a potential domino effect leading to the collapse of the EU,” Fadi Arbid, CEO of Amal Al Khaleej and YPO member told AMEinfo.
The United Kingdom is the first member country to leave the bloc.
Others speculated the potential consequence and warned of the immediate market reactions following the Exit announcement.
“Global equities will tank and so will the GCC markets. However, the dollar would rally significantly and therefore the GCC currencies with it. I doubt it will have any impact on real estate,” Basel Binjabr, CEO of Saudi-based SBG Capital and member of YPO, said ahead of the announcement.
He noted that “the UK was the slowest economy among G7 before EU membership, but has had the fastest growth after the membership. I believe that the market is a much more accurate prediction tool than any poll.”
Yet financial markets, especially those in the GCC, had been operating on thin trades ahead of the announcement, because of a lack of direction over the Brexit vote.
Gulf bourses have already been witnessing low activity because of the month of Ramadan and the summer holidays.
The International Monetary Fund (IMF) had warned the UK about exiting the European Union, claiming the uncoupling would be bad news for everybody, potentially driving the country into a recession, precipitating a stock market crash and a drop in house prices, among other negative consequences.
According to the IMF, the United Kingdom has been performing “relatively well” in recent years, but “growth has slowed somewhat in the first part of 2016, as heightened uncertainty ahead of the referendum on EU membership appears to be weighing on investment and hiring decisions,” an IMF statement released prior to the announcement read.
Half of the UK’s investments and trade revenue come from European Union, but quite a hefty sum arrives from the Middle East region, particularly GCC countries. This is especially true for the real estate sector, as GCC investors have been continuously buying property in the capital of London.
“GCC investors are huge buyers of properties in London, making it a top investment destination for the SWFs in the region. The UAE alone accounted for more than 20 per cent of buy-to-let property sales in the UK in 2015 and an exit from the EU would negatively affect their portfolios which has seen significant run-downs on account of low oil prices,” MR Raghu, the managing director of Marmore MENA Intelligence, a research house focused on conducting Mena-specific business, economic and capital market research, told AMEinfo.
However, other general trade and economic ties with the region would not be hugely affected, according to Raghu.
“Trade and economy are largely expected to remain unaffected. In fact, the weakness of the pound sterling against the dollar can make UK-manufactured products very competitive.
“The GCC region and the EU have been trying to sign an FTA since the 1980s, but it has not come to fruition, as it involves a number of countries, authorities and co-ordination. The UK could bypass that restriction out of the EU and could sign a standalone FTA with the GCC,” he added.
Why it left
Leading campaigners included former mayor of London Borris Johnson, UKIPP leader, who has openly criticized the EU on many occasions; Nigel Farrage and US presidential candidate Donald Trump, among others.
The supporters of the “Leave” campaign had many different reasons to support the move. These are:
High membership costs
The Leave campaign claims the United Kingdom pays the European Union 350 million euros every week. This number has been debunked by some, but the campaign continued to state it as a fact. According to the campaigners, this money can be put to better use to support and build hospitals and schools.
Ability to control the its borders
Leave campaigners highlighted the threats the UK faces from having open borders with neighbouring European countries, as almost all of the European countries are facing a huge influx of refugees looking to relocate. By closing its borders, the United Kingdom will be able to control entry to its country, but this decision could have been overruled by EU judges.
Ability to control migration
Prior to the exit, EU citizens were able to live and work in the UK without the need for a visa and without baring any costs. Leave campaigners wanted to decide on who migrates into the UK based on “the skills they have, not the passport they hold,” as stated on the campaign’s website.
Other reasons include wanting the freedom to sign free-trade deals with different countries around the world, independent of the European Union, and being able to formulate policies independently, without a tie-up to the EU.
With the UK’s exit from the EU, both parties now have two years to formulate new legislations, including trade and investment policies, among other bilateral regulations.
Following the results, it was further speculated who would leave the EU next.