Brexit vote and Trump carry economic uncertainty into 2017 and beyond

Jared Perttunen ’17, Managing Editor

 

Following the highly controversial Brexit vote in 2016, the United Kingdom faced economic uncertainty. The vote was over whether or not the United Kingdom would exit the European Union, widely known as a Brexit. Britain is a strong economic power and many concerns were raised regarding the nation’s economic future after its decision to leave the European Union. Back in 2016, the United Kingdom government tried its best to relieve many of those fears, promising to strike a beneficial deal during EU negotiations.

Unfortunately, those fears have not been subsided, in fact even more have been raised as the country draws closer to enacting Article 50, the first action necessary to leave the EU. The nation’s currency in particular has been a source of great concern. The pound still has not recovered from its fall in 2016, its worth had fallen to 15 percent lower than the United States dollar. Interest rates are not likely to rise anytime either, especially since the vote convinced the Bank of England to lower its interests rates even further from 0.5 percent to 0.25 percent. The bank’s rates have not changed since 2009, which is an indication that little economic growth is expected in the years to come.
Statistics like this have led to a fear of economic uncertainty, and investors hate unpredictability. According to the Office of National Statistics, the United Kingdom government’s source of economic statistics, business investment has decreased 1 percent since September. Many economists predict that business investment will continue to fall in the United Kingdom, leading to an uptick in investment in what is considered to be safer economies such as the US and Japan.

This leaves the question of what does this mean for Americans? The devaluation of the pound means that vacations to the United Kingdom will be cheaper for American citizens, and increased investments mean more business growth in the United States; however, these are only short term benefits in the grand scheme of things. A full British divorce from the EU could prove messy and economically unstable.

The World Bank has reported a disappointing lack of growth in 2016 and warns that the political uncertainty brought by Brexit and the election of Donald Trump puts further growth at risk. According to the findings of their Global Economic Prospects (GEP) program, the world economy only grew by 2.3 percent, far shy of their earlier estimate of 2.7 percent.

Citing the uncertain future for trade following Trump’s promise to rearrange the global trade balance, the GEP said, “This and other risks – particularly financial market disruptions amid tighter global financing conditions – may be amplified over time by mounting protectionist tendencies, slower potential growth and elevated vulnerabilities in some emerging markets and developing countries.”

Seeing as how President Trump has already dropped out of the Trans Pacific Partnership and is considering renegotiating NAFTA, Trump seems comfortable with disrupting the world trade balance. With this, and Brexit, it is clear that economic uncertainty is likely to be the theme of 2017.

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