Brexit – UK in Limbo, Part 2

Just over three weeks since the Brexit results and the UK remains in a political limbo. Financially-speaking, however, things are beginning to calm down. After the initial shock, the markets have quietened, with the FTSE100 even moving ahead of where it was before the referendum. It looks like Europe has survived the immediate, violent reaction and the focus now shifts to what continued uncertainty, and a withdrawal from the EU, will mean for the UK, and the rest of the world.

Biggest question next – EU budget

The next big economic issue surrounding Brexit is the question of the EU budget. The EU’s current budget stands at €960bn for the years 2016-2020. £47.5bn should come from the UK up until 2020, but since spending that money on UK institutions such as the NHS played a central role in the Leave campaign’s argument, it is unlikely that the next Prime Minister will agree to honour that commitment for another 3 years.

The UK certainly will not stop paying until the withdrawal agreements have all been discussed and decided, but sooner or later the UK will stop contributing, and then the question will be what can be done to fill that gap. One possibility is that the EU will expand its revenue sources, past the current sugar tax and customs duties, the other is that net contributors will agree to pay more and net receivers will agree to accept less. Either way, this decision will undoubtedly have an effect on the economies of the remaining member states.