Brexit, which consists of the combination of the first two letters (Br) and exit (British) of Britain, signifies the departure of Britain from the European Union. The European Union is the largest trading partner of the United Kingdom. EU membership in this sense not only reduces the commercial costs between the UK and the EU, but also makes the goods and services cheaper. However, the withdrawal of some of the powers transferred to Brussels with membership in 1973 on employment and social policies, the immigration problem, the EU budget and its economic return, the rise of anti-EU sentiment has led to the decision of the United Kingdom on 23 June 2016 to refer the EU membership to a referendum. As a result of the referendum, the UK has decided to leave the EU with an approximate 52% vote.
The decision to split will have implications for both its own market and global financial markets. Britain, both Europe’s and world’s global financial center, will face new trade arrangements after Brexit. It will shape its immigration policy only based on qualifications. Moreover, the decline in post-Brexit contributions to the EU will increase the savings of the UK. On the other hand, foreign trade may face tariff increases and there may be a decrease in the investments coming here due to uncertainty.
What can be expected in the financial markets? Uncertainty may arise in the post-Brexit financial markets. Uncertainty in financial markets will have negative effects on exchange rates, interest rates, credit outlook and financial stability. With Brexit, volatile growth and portfolio mobility can be expected in the markets. Portfolio decline may have an effect on the long-term financing of the current account. As London is a global financial center, the capital market will be adversely affected. Similarly, financial institutions in the UK have close ties with the EU business community. Strong relationships between fund managers and the EU financial community may be adversely affected by Brexit, leading to a decline in transactions in European capital markets. If the ratings of international rating agencies on the UK economy are unfavorable, a reduction in long-term investments may occur. London is a center for financial services. For this reason, the UK may lose its power of global policymaking on financial services in the EU and other economies. Financial services and insurance account for 8% of gross value added in the UK. It is likely that the financial services sector, which has had external surpluses with the EU, will face new and additional regulations after Brexit.