Four Years of Brexit Turmoil: How the UK and EU's "Breakup" Is Reshaping the Global Financial Landscape

The ongoing Brexit turmoil continues to impact global financial markets. This four-year political saga, from the 2016 referendum decision to its official implementation in 2020, has gone through 2 general elections and 3 prime minister changes. For investors, understanding the core roots of Brexit and market evolution is key to seizing opportunities in GBP trading.

The Three Main Drivers Behind Brexit

Britain’s renewed push for Brexit stems from three deep-seated social forces.

Economic hardship fueling Euroscepticism

The 2008 subprime mortgage crisis triggered the Eurozone debt crisis, shattering the myth of EU integration. An imbalance emerged within the Eurozone—“core countries producing, peripheral countries consuming.” Although the UK did not join the Eurozone, it was compelled to bail out its debt-ridden allies. This enormous economic burden planted deep skepticism about the EU system in Britain, with the “Eurosceptic” wave spreading year after year.

Political gamble with an unexpected outcome

In 2016, coinciding with a UK general election, Conservative leader David Cameron promised—if re-elected—to hold a Brexit referendum. At that time, mainstream political forces including the Conservative, Labour, and Liberal Democrats supported remaining in the EU. Cameron did not anticipate a reversal in the referendum. On June 23, 2016, the vote shocked the world: 52% supported Brexit, 48% favored remaining. The Brexit camp narrowly turned the tide. This high-stakes political gamble ended with Cameron resigning.

Refugee crisis as an overwhelming factor

Immigration issues directly touched the nerves of the British public. After 2015, the refugee influx across EU countries forced Britain to shoulder additional social burdens—diluted employment opportunities, strained education and healthcare resources, rising housing prices. Low-income groups were hit hardest. They saw Brexit as a way to restrict immigration and voted accordingly, supporting the Brexit camp.

Four-Year Political Marathon: From Referendum to Formal Implementation

From the June 2016 referendum to the January 2020 official Brexit, Britain experienced a lengthy and winding political process.

2016–2017: Decision and initiation

After the June 23 referendum, Theresa May became Prime Minister on July 13. On March 29, 2017, the UK triggered Article 50 of the Treaty on European Union, starting a two-year countdown for Brexit negotiations. In June, May’s government called a snap election to strengthen its negotiating position. Meanwhile, EU institutions began relocating financial agencies—European Banking Authority moved from London to Paris, European Medicines Agency to Amsterdam.

2018–2019: Repeated negotiations and deadlock

In November 2018, the EU and UK reached a preliminary consensus on the Brexit withdrawal agreement. However, when presented to Parliament on January 15, 2019, it was rejected by 432 votes to 202. The May government re-submitted the deal in March, only to face another rejection. The deadlock led Theresa May to announce her resignation on July 24, with Boris Johnson succeeding as Conservative leader and Prime Minister.

After taking office, Johnson rapidly advanced negotiations, reaching a new Brexit deal with the EU on October 17, 2019. Following approval by the European Council and the UK government, the Conservative Party achieved an overwhelming victory in the December 2019 general election with 78% support—its highest since 1987.

2020: Formal exit and transition period begins

On January 23, 2020, the European Union (Withdrawal Agreement) Act was approved. On January 31, the UK officially left the EU, entering an 11-month transition period. From January 1, 2021, the new trade agreement took effect, and international treaties signed by the UK began to apply.

Why Did Brexit Take So Long? Three Key Issues

The prolonged Brexit process reflects deep political divisions in the UK.

First, fundamental disagreements over the withdrawal agreement. The UK and EU proposed four options—Chequers plan, soft Brexit, hard Brexit, and no-deal Brexit—but could not reach consensus, as factions refused to compromise.

Second, the majority of UK domestic politics favored remaining. Prominent advocates like Cameron and many political elites supported staying in the EU, making Brexit difficult to push forward domestically.

Third, the Northern Ireland border issue became a technical challenge. Post-Brexit, Northern Ireland would become a land border between the UK and EU. While both sides agreed to avoid a “hard border,” no workable solution was found. The COVID-19 pandemic further worsened negotiations, as global shutdowns hampered progress.

The Dual Impact of Brexit on the UK Economy

Potential benefits of Brexit

Post-Brexit, the UK can independently restrict refugee entry, easing social pressures. Previously, the UK paid an average of £23 million daily to the EU; after Brexit, this funding can be redirected to domestic development. Most importantly, the UK regained political and economic sovereignty, enabling it to sign trade agreements worldwide without EU constraints.

Economic shadows cast by Brexit

However, international research institutions and UK officials warn of negative impacts. The EU accounts for 46.9% of UK exports, while the US and China contribute only 11.9% and 5.1%, respectively. On the import side, the EU supplies 52.3% of UK imports. Post-Brexit, these trade relationships are inevitably affected, likely causing significant short-term economic disruptions. To fill this gap, the UK must negotiate new trade deals with other countries—a lengthy process.

How Brexit Shakes the Global Financial Markets

Stock market ripple effects

After the UK officially left the EU in early 2020, global stock markets experienced notable volatility. European financial stocks, automotive manufacturers, and airlines were hit hardest, as these sectors rely heavily on UK-EU trade. Brexit uncertainty directly threatened their profit outlooks. By 2021, the Brexit trade deal reduced some uncertainty, but logistics and cross-border transport companies still face new rules and adjustments.

Forex market volatility

The GBP exchange rate became a barometer of Brexit uncertainty. In early 2020, GBP/USD experienced sharp fluctuations, as market pessimism about future trade prospects pushed the pound lower. By early 2021, with the trade deal in place, GBP stabilized somewhat, but COVID-19, economic recovery expectations, and global central bank policies continued to influence its trend.

Entering 2022, the escalation of the Russia-Ukraine conflict caused increased volatility in GBP/USD, with upward momentum severely lacking. However, as global central banks gradually raised interest rates, market structures shifted. From multiple perspectives, 2022 and beyond mark a historic turning point for trading GBP/USD and other currency pairs.

Soft Brexit and Hard Brexit: Two Future Paths

“Soft Brexit” means the UK maintains close economic and trade ties with the EU after leaving, but at the cost of making concessions on immigration, welfare, etc.—a compromise solution. “Hard Brexit” entails a complete severance of economic links with the EU, with the UK no longer bound by EU rules, and bilateral trade agreements needing separate negotiations. Ultimately, the UK chose a path closer to hard Brexit, which remains the fundamental reason for ongoing market volatility.