Brexit Decision Effects on the UK, Germany and Spain

BREXIT DECISION EFFECTS ON THE UK, GERMANY AND SPAIN 1
BREXIT DECISION EFFECTS ON THE UK, GERMANY AND SPAIN
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BREXIT DECISION EFFECTS ON THE UK, GERMANY AND SPAIN 2
Introduction
Brexit refers to a decision by the United Kingdom to exit the European Union. The European
Union is composed of 28 nations in the Europe region which together form a single market. The
United Kingdom’s decision vote to exit the European Union occurred on 23rd 2016 June (Clarke,
Goodwin and Whiteley 2017, p.439). The decision led to the depreciation of the British Pound
and caused uncertainty in business and global markets disruption. Brexit decision effects have
been analyzed for three nations namely the UK, Germany, and Spain considering the exchange
and interest rates as well as their stock prices for the months of 2016. The data used in this report
has been obtained from the “World Bank through FRED Economic Data website”.
The United Kingdom
The economy of the United Kingdom is among the richest economies not only in the Europe
region but in the whole world. The UK occupies position 3 among the 44 Europe region nations.
The UK is a European Union member but it made a decision to leave the union in 2016. Still, the
debate is ongoing to determine whether or not the nation should leave the union. The decision
affected the nation’s business activity as well as that of other trading partners (Davies and
Studnicka 2018, p.1).
Exchange rates
The UK uses pound sterling as its currency. The currency was highly impacted by the Brexit
decision as its value deteriorated (Plakandaras, Gupta and Wohar 2017, p.206). The nation’s
exchange rates against the US dollar depreciated as shown in the following data.
2016 Exchange Rate

BREXIT DECISION EFFECTS ON THE UK, GERMANY AND SPAIN 3
January 1.44
February 1.43
March 1.42
April 1.43
May 1.45
June 1.42
July 1.31
August 1.31
September 1.31
October 1.23
November 1.24
December 1.25
Months prior to Brexit decision, the pound sterling exchange rates against the US dollar were
high as compared to months after the decision. The UK political uncertainty continued to weaken
the pound sterling (Jensen and Snaith 2016, p.1302). The graph for the data is shown below.
January
February
March
April
May
June
July
August
September
October
November
December
1.10
1.15
1.20
1.25
1.30
1.35
1.40
1.45
1.50
Exchange Rate
Exchange Rate
Year 2016
Exchange Rate
Interest rates
Base rates determine a nation’s level of interest rates. Base rates in the UK are set by the
“Monetary Policy Committee” through the nation’s Bank of England. Months before the Brexit
decision, the UK base rates were maintained at a percentage of 0.5 and hence interest rates were

BREXIT DECISION EFFECTS ON THE UK, GERMANY AND SPAIN 4
a bit lower. After the Brexit decision, base rates were cut further to 0.25 percent hence lowering
the nation’s interest rates further. The data for the months of 2016 UK interest rates are shown
below.
2016 Interest Rate (%)
January 1.78
February 1.50
March 1.54
April 1.57
May 1.54
June 1.31
July 0.96
August 0.74
September 0.82
October 1.08
November 1.38
December 1.43
Interest rates declined after the Brexit decision since the nation expected economic recession and
hence had to boost the nation’s economic activity. The graph for the data is shown below.
January
February
March
April
May
June
July
August
September
October
November
December
0.00
0.50
1.00
1.50
2.00
Interest Rate (%)
Interest Rate (%)
Year 2016
Interest Rates (%)
Stock Prices
Stock Prices are also referred to as share prices. The stock prices for the UK were higher months
before the Brexit decision. However, after the Brexit decision the stock prices rose as the pound
sterling depreciated and this made companies dealing foreign currencies raise their profits as