Four-year review of the Brexit storm: How the UK went down this irreversible path

Brexit has become a long-term focus of global financial markets. From the referendum decision in June 2016 to the official withdrawal from the EU in January 2020, this four-year political upheaval profoundly changed the relationship landscape between the UK and Europe and also brought lasting volatility to global financial markets.

Why Did the UK Choose Brexit: Three Fundamental Reasons

The decision for Brexit was not impulsive but rooted in deep structural contradictions.

Catalyst of Economic Dilemma. Long-standing imbalance within the EU between core and peripheral countries was intensified by the 2008 subprime crisis and the subsequent Eurozone debt crisis. Although the UK, as an important member of the EU, did not adopt the euro, it was compelled to participate in rescuing debt-ridden European countries. This intangible economic constraint fueled domestic “Euro-skepticism,” leading many to question the gains and losses of the UK within the EU framework.

Political Gamble Turnaround. During the 2016 general election, Conservative Prime Minister David Cameron promised a Brexit referendum to garner more votes. At that time, mainstream political elites in the UK largely supported remaining in the EU, and Cameron did not anticipate the referendum result would turn against him. Ultimately, with a narrow 52% to 48% victory for the Leave camp, Brexit supporters won this gamble, and Cameron stepped down in disgrace.

Immigration Crisis as the Trigger. As the most direct trigger for Brexit, the refugee issue impacted the UK’s employment market and public services. The EU’s requirement for member states to open borders to refugees put real pressure on the UK, which values low unemployment. The wave of refugees sweeping across Europe after 2015 became the final straw that broke the “Remain” camp’s resistance.

Turbulence in Global Financial Markets

Brexit’s impact on international financial markets is multidimensional.

Chain Reaction in Stock Markets. After the UK officially left the EU in early 2020, European financial stocks, automobile manufacturers, and airlines experienced volatility. Uncertainty over UK-EU trade prospects placed significant adjustment pressures on cross-border trade companies, especially in logistics and transportation. Although the 2021 trade agreement eased some anxieties, market sentiment remained fragile.

Sharp Fluctuations in Exchange Rates. The performance of the British pound most directly reflected market expectations. In the early stages of Brexit, the GBP/USD exchange rate experienced intense volatility, with markets worried about the UK’s economic outlook. Following the signing of the 2021 trade deal, the pound briefly stabilized, but subsequent factors such as the Russia-Ukraine conflict, Federal Reserve rate hikes, and global inflation continued to trouble the pound’s trajectory. From 2022 onward, the GBP/USD pair became an important barometer for global macroeconomic changes.

Why Did the Complex Brexit Process Take Four Years?

From the June 2016 referendum to the formal Brexit in January 2020, this period witnessed three Prime Ministers’ succession and two general elections, making it a “drama” in modern political history.

Disagreement over the Deal as the Core Obstacle. Multiple rounds of negotiations between the UK and EU focused on various Brexit options, including the Chequers plan, soft Brexit, hard Brexit, and no-deal Brexit. Domestic UK disagreements over the approach were profound, with pro-EU MPs and Brexit supporters unable to reach consensus on specific pathways.

The Dilemma of the Northern Ireland Border Issue. Post-Brexit, the border between Northern Ireland and Ireland would become the only land border between the UK and the EU. While both sides oppose a “hard border,” effective implementation remains elusive. This issue involves complex interests among Ireland, the UK, and the EU, making it extremely difficult to balance.

Unpredictable External Shocks. The global outbreak of COVID-19 disrupted negotiations, and economic standstills in various countries hindered progress. Without an agreement before the end of the transition period, both sides might revert to WTO trade rules.

Gains and Losses of the UK Economy Due to Brexit

Short-term Actual Benefits. Post-Brexit, the UK no longer needs to pay membership fees to the EU—statistics show the UK previously paid up to 23 million pounds daily. This funding can now be used for domestic infrastructure and social welfare. Additionally, the UK gained independent trade negotiation rights, enabling bilateral agreements with more countries worldwide, theoretically enhancing its international economic standing. Restoring immigration controls also eased pressure on public services.

Long-term Trade Challenges. However, research institutions and the UK government have warned of negative impacts. The EU accounts for 46.9% of UK exports and 52.3% of imports. Post-Brexit, the previously close trade ties will inevitably loosen, exerting substantial short-term pressure on the UK economy. Whether new trade agreements can compensate for the loss of the European market will determine the long-term trajectory of the UK economy.

Soft Brexit vs Hard Brexit: Two Very Different Paths

The choice of Brexit approach concerns the UK’s future.

Soft Brexit represents political independence but maintains close economic ties with the EU, often involving compromises such as allowing EU citizens to access welfare benefits. Hard Brexit means severing most ties with the EU, no longer being bound by EU rules, and negotiating new trade arrangements separately. Ultimately, the UK chose a middle path—under the premise of full political independence, reaching a limited trade agreement with the EU.

The complexity of the reasons behind Brexit means this decision is unlikely to produce clear results in the short term, and financial markets will continue to fluctuate regarding the UK’s economic outlook for a considerable period.