On June 23, 2016, the UK held a referendum, and a slim but sufficient 51.9% majority voted in favor of the UK leaving the European Union. With the change comes some political upheaval as Prime Minister David Cameron announced that he will be stepping down from his role, which does not come as a shock since the Prime Minister was a proponent of remaining in the EU. The markets responded downward – as expected in the wake of change and uncertainty, and the Sterling hit a 31-year low.
Although Brexit has strengthened the U.S. Dollar and made UK travel appealing for those trading greenbacks for pounds at the airport, it has created tremendous political uncertainty as the UK will now have to negotiate its exit from the EU with the remaining members. Brexit proponents touted control over immigration and prosperity as the major reasons to leave, and it appears one but not the other may follow – at least in the short term. Britain now has two years to withdraw from the EU.
For now, the effects will be politically and financially reactive and mercurial, based on the perceived and real effects of the decision. For U.S. companies, the concern is that the building strength of the dollar will dampen export markets in Britain and Europe. Otherwise, in the face of certain uncertainty, it is difficult to predict the long-term effects on commerce and policy.