The reason for voting for the Brexit can be found in rising economic inequalities in
Britain paired with unique British Euroskepticism. The US and UK experience higher inequality and a losing middle class because of their pronounced laissez-faire economic policy. Furthermore, the ordinary Brit does
not think of him being European but British only. This is in stark contrast to continental Europeans.
The economic consequences of the referendum is very difficult to forecast, because Britain needs first to define the relationship it wants to have with Europe.
Specifically, it has to think hard about what sort of compromises it is willing
to make in order to have access to the EU single market. As a reminder, the EU wants for its free market access the right
of people to move freely, which was the core argument of the Leave campaign. No free market access creates a big problem for some industries. For instance, many cars produced in Britain are exported to other EU countries. Toyota’s UK
factory sells 80% to continental Europe, and a 10% levy on export would most
certainly mean that production will move elsewhere. The City of London is
relying on its EU passport for financial services which allows banks, insurers
and asset managers to operate and offer products across European borders. With
the passport gone, relocation
of financial institutions to other financial hubs like Paris, Frankfurt, Dublin
or Luxembourg would be likely. Even if Britain can keep the financial services
passport it has now lost its influence over the rule setting process, which it
had as a EU member. In the past it used that influence, to shape the regulation according to its interest.
I expect that enterprises will put many investment projects on hold until the the question of the access to the EU market is answered. Only the the plunge of the Pound lessens the pain of the exporters. But a weak Pound will increase inflationary pressure, and hence, will push interest rates up.
