On June 23, 2016, the people of Britain voted to leave the European Union. The impact of this historic referendum was immediately felt all over the world. Just 24 hours after the vote, markets all over the world plunged sharply. According to some economists, the markets plunging is a sure sign that economic turmoil is on the horizon.
Here are 3 things that can cause the Brexit crisis to get worse:
#1 – The Slow Down Of Trade Flows
A research brief put out prior to the referendum showed various ways the British economy would suffer as a result of Brexit. The brief pointed out the fact that almost 50 percent of all UK exports go to the rest of Europe. And Britain has benefited greatly from the lower tariffs and market access you only get when you are part of the European Union.
Once Britain decided to leave the EU, trade flows now have the potential to slow down considerably.
#2 – UK Incomes May Start To Fall
According to the Centre for Economic Performance at the London School of Economics, UK incomes could fall by as much as 3.1 percent in the wake of Brexit. With lower incomes you open the door for homelessness, poverty and higher crime rates.
#3 – Businesses May Stop Hiring
When there is a lot of uncertainty in the economy, the first thing businesses will do is stop hiring. They will also stop making any new investments. Instead they will start to shrink their workforce in a effort to preserve their business.
So not only will incomes be lowered, but people won’t be able to find jobs. This is truly a recipe for disaster. And once one domino starts to fall, the rest will start to fall and things will only get worse.
As Paul Krugman of the New York Times put it, Brexit will make Britain poorer. While he can’t put a number on how much poorer Britain will be, he does believe it will be substantial.
At this point no one really knows the long term economic impact Brexit will have on the European Union or on Britain. Larry Summers, the former director of the US National Economic Council, believes the bigger question is what will happen if other countries decide to follow Britain’s lead and exit the European Union?
For now the world will just wait and see what becomes of Britain over the next 12 months.
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