Ever since June, Brexit has been one of the major stories in the news. It hasn’t even gone into effect yet, and already it’s had a huge impact on both Europe and the United Kingdom. What does it mean for America, though? How does Britain severing their ties with the EU affect us in the United States? The repercussions go deeper than you might think. Here are just a few.
- The Dollar Is Stronger The immediate response to the announcement of Brexit was that both the pound and the euro dropped significantly in value. This made the dollar stronger in comparison. This is great if you’re planning on traveling to either the UK or Europe and spending money, as your cash will go further. However, for businesses in the U.S. doing business abroad it’s a problem. Stronger American currency means our prices are going up internationally, which hurts U.S. trade. What’s more, when businesses aren’t doing as well abroad, those problems tend to affect their domestic bottom lines as well. Prices go up as a result of their losses, and we’re the ones who suffer.
- Markets Are Volatile The other thing that happened when Brexit was announced was a large dip in the markets, not only in Europe, but in the U.S. as well. The threat of the trade problems mentioned above made people afraid of what will happen to our economy in the wake of this decision. It’s likely this trend will only continue and even worsen as the transition is made and Britain actually exits the EU. With the markets becoming so volatile, our economic growth will slow, leading once again to higher prices and a reduction in consumer confidence.
- Safe Havens Are Increasing in Popularity As the markets become volatile and the threat of another recession looms, more people are putting their assets into safe havens. This is usual during times of economic turmoil. Stocks are going down, so people turn to something more stable to protect against the loss of their investments. That something is often gold or other precious metals, as well as real estate and certain secure bonds. They’ll maintain their value over time and keep investors from losing their nest egg.
- It Could Hamper Fed Plans to Continue Rate Hikes In 2008, the Federal Reserve Board lowered the interest rate to nearly zero in order to help the economy recover from the Great Recession. The rat remained there until December of last year, when they deemed us financially stable enough for a small hike. They also promised up to four more rate raises in the coming year.
A year later, we’ve only seen one additional small bump, last week, while insisting more hikes will come in 2017.
But, as we’ve seen, Brexit has caused serious fluctuations in our economy and made our financial future less stable. If the Fed were to continue to increase the interest rate, it will raise mortgages, credit card interest rates, and a variety of other things, potentially leading to another recession.
The full implications of Brexit can’t truly be known until the referendum actually takes effect. The transition will be a gradual process, over which time more of the impacts will become clear, for Britain and the EU, as well as for us. But whatever the repercussions are, they’re likely to be significant and long-lasting.