The Benefits and Drawbacks of Brexit: How Four Years of Political Deadlock Are Reshaping the Global Financial Landscape

The political storm of Brexit from 2016 to 2020 has become one of the most pivotal events in modern financial history. From the initial referendum decision, through complex negotiations, to the formal departure on January 31, 2020, Brexit not only reshaped the UK’s economic landscape but also profoundly impacted global stock markets, foreign exchange markets, and trade patterns. For investors, understanding the ins and outs of Brexit and its market implications has become an essential course for formulating investment strategies.

Why Did Brexit Happen: Three Major Drivers Leading to a Historic Turning Point

On June 23, 2016, the UK held a referendum on leaving the EU, ultimately deciding with 51.9% support to exit the European Union. This result shocked the world, as in the previous Brexit referendum of 1975, the UK had overwhelmingly chosen to stay in with 62.7%. What exactly happened to cause the British public to change their minds after decades?

Economic imbalance was the primary root cause. After the 2008 subprime mortgage crisis, structural imbalances within the EU worsened—core countries dominated production, while peripheral countries fell into consumption difficulties. The subsequent Eurozone debt crisis saw the UK, not part of the Eurozone, forced to participate in rescuing debt-stricken allies. This passive economic burden sparked deep skepticism within the UK about the EU system, with “Euro skepticism” gradually spreading.

Political internal strife intensified divisions. Prime Minister David Cameron, facing a lead in polls before the 2015 general election, made a bold decision—pledging to hold a Brexit referendum if re-elected. His plan was that, with most MPs favoring remaining in the EU, the referendum would naturally confirm that choice. Unexpectedly, the Leave camp narrowly reversed the situation, and Cameron resigned in disappointment. This high-stakes political gamble, betting on national destiny, ultimately ended in failure.

The immigration crisis became the final straw. The 2015 European refugee influx swept across countries, and the UK, as an EU member, was compelled to accept refugees. The large influx not only crowded local jobs, diluted education and healthcare resources, but also drove up housing prices. For the UK public accustomed to low unemployment, especially among low-income groups, restricting immigration became a core demand in the Brexit vote.

The Long Negotiation Road: Three Key Issues Behind a Four-Year Political Marathon

The Brexit negotiation process was remarkably tortuous: from the 2016 referendum to the official departure in 2020, spanning four years, two general elections, and three Prime Ministers, before finally settling.

First was the multiple negotiations over agreement proposals. The UK and EU proposed various paths—Chequers plan, soft Brexit, hard Brexit, no-deal Brexit. Theresa May’s government submitted three Brexit deals, all of which were rejected by Parliament with a historic vote of 432:202 (January 15, 2019). It was only after Boris Johnson became Prime Minister that the situation began to turn. The Conservative Party won over 78% support in the December 2019 general election—its largest victory since 1987—laying a political foundation for the final approval of the Brexit deal.

Second was the severe division within UK factions. Including Cameron, who proposed the referendum, most UK MPs initially favored remaining in the EU, making Brexit progress extremely difficult domestically. Parties repeatedly juggled between “soft Brexit” (maintaining close economic ties with the EU) and “hard Brexit” (cutting all ties), with consensus remaining elusive.

The third major issue was the Northern Ireland border problem. After Brexit, the border between Northern Ireland and Ireland would become the only land border between the UK and the EU. Although both sides agreed to avoid a “hard border” (restoring customs checks), no workable solution was found for practical implementation, and this longstanding issue repeatedly became a stumbling block in negotiations.

Brexit Timeline Review

• June 2016: Referendum decides to leave; Theresa May becomes Prime Minister in July
• March 2017: UK triggers Article 50, officially starting negotiations
• November 2018: EU and UK reach a political agreement on withdrawal
• January 2019: First Brexit deal rejected by Parliament
• July 2019: Boris Johnson becomes Prime Minister
• October 2019: New Brexit agreement reached
• January 31, 2020: UK officially departs, enters transition period
• December 31, 2020: Transition ends, trade agreement takes effect

Benefits of Brexit: Sovereignty and Resources Gained

Brexit brought tangible benefits to the UK. First, the UK no longer bears the heavy financial burden of EU membership. Statistics show that before Brexit, the UK paid about £8.45 billion annually to the EU (roughly £23 million daily). This substantial sum can now be invested in domestic infrastructure, healthcare, and education.

Second, the UK gained full political and economic autonomy. Under the EU framework, the UK could not independently negotiate trade agreements or develop economic relations with other countries. Post-Brexit, the UK can negotiate bilateral agreements based on its interests, strengthening its international standing.

Third, immigration issues were alleviated. Brexit allows the UK to set its own immigration policies without adhering to EU directives on refugee acceptance. In the short term, this eased pressures on employment and public resources.

Drawbacks of Brexit: Trade Barriers and Economic Costs

However, the costs of Brexit are equally significant and far-reaching. The most immediate impact is the disruption of trade patterns. The EU has long been the UK’s largest trading partner—accounting for 46.9% of UK exports and 52.3% of imports. In contrast, the US accounts for only 11.9%, and China just 5.1%. Post-Brexit, the tariff-free trade advantage with the EU vanished, and UK businesses face new tariffs and customs delays.

This hit is especially severe for industries reliant on the European market. Automotive manufacturing, financial services, pharmaceuticals, and logistics face rising costs and increased market access difficulties. International research institutions and UK officials forecast that Brexit could slow UK economic growth by 0.5%-2% in the medium term.

Ripple Effects on Global Financial Markets

Brexit’s impact on financial markets spans multiple dimensions.

Stock markets: After Brexit took effect in early 2020, European financial stocks, automotive manufacturers, and airlines experienced notable volatility. These sectors are most sensitive to UK-EU trade relations. By early 2021, the UK-EU trade agreement reduced some uncertainties, but cross-border logistics and transportation companies still need to adapt to new customs rules, maintaining market adjustment pressures.

Foreign exchange markets: The British pound experienced intense fluctuations during Brexit. In early 2020, as Brexit certainty increased, the pound rebounded; however, subsequent escalation of the Russia-Ukraine conflict and the start of global rate hikes affected the currency. In 2022, GBP/USD entered a historic turning zone—lacking upward momentum and facing downward risks. After the Bank of England shifted to a more accommodative policy, the pound gradually stabilized.

From a macro perspective, Brexit reshaped the boundaries of global trade patterns, causing structural impacts on companies dependent on cross-border supply chains and prompting markets to reassess geopolitical risks.

How Investors Should Respond: Opportunities and Risks in the Brexit Era

For traders, Brexit has created new investment opportunities. Increased volatility in the pound offers forex traders chances to capitalize on exchange rate movements. Meanwhile, some companies heavily impacted by Brexit are undervalued, providing long-term investment entry points.

More importantly, establishing a systematic risk management framework is crucial. The economic uncertainty in the UK persists, and corporate earnings expectations are continually adjusting. Investors holding UK assets should closely monitor trade agreement implementations, GBP exchange rate trends, and Bank of England policies.

Brexit’s benefits and drawbacks coexist; success depends on how to seize opportunities and avoid risks amid the changing landscape.