Effects of Brexit on UK, Germany and Spain

THE EFFECTS OF BREXIT ON THE UNITED KINGDOM, GERMANY AND SPAIN 1
THE EFFECTS OF BREXIT ON THE UNITED KINGDOM, GERMANY AND SPAIN
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THE EFFECTS OF BREXIT ON THE UNITED KINGDOM, GERMANY AND SPAIN 2
Introduction
Brexit is an abbreviation used to describe the British Exit from the European Union which is a
single market made up of 28 European nations inclusive of the United Kingdom (Goodwin and
Heath 2016, p.323). The United Kingdom’s vote to leave the European Union was made during
the year 2016 June date 23. The vote resulted in business uncertainty and hence disrupted global
markets as the value of the British Pound declined (Hobolt 2016, p.1259). In this report, an
analysis of the effects of Brexit has been done for three nations namely the United Kingdom,
Germany and Spain based on their exchange rates, interest rates and stock prices for the months
before and after the Brexit decision.
The United Kingdom
The United Kingdom is one of the richest nations in the region of Europe having been ranked
position 3 out of the 44 nations in the region in terms of economic growth. It has been a member
of the European Union and hence has been embracing free trade with the European Union
member nations among others. However, during the year 2016 on date 23, the United Kingdom
made a decision to exit the European Union and this highly impacted business not only in its
domestic economy but also in other nations.
Exchange Rates
The United Kingdom pound sterling currency exchange rates were highly affected by the Brexit
decision. The following data which has been obtained from “FRED Economic Data” shows the
Sterling Pound exchange rates against the US Dollar currency months before and after the Brexit
decision.

THE EFFECTS OF BREXIT ON THE UNITED KINGDOM, GERMANY AND SPAIN 3
2016 Exchange Rate
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
Before the Brexit decision, the currency exchange rates for the sterling pound against the US
dollar were high. However, after the decision the sterling pound exchange rates declined sharply.
Also, the pound sterling exchange rates against the Euro declined by 15 percent. The pound
sterling continued to be weak due to uncertainty in political developments and poor release of the
United Kingdom economic data (Henderson et al 2016, p.187). The data has been graphed
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

THE EFFECTS OF BREXIT ON THE UNITED KINGDOM, GERMANY AND SPAIN 4
From the graph, it is evident that the pound sterling exchange rates declined sharply after the
Brexit decision made on 2016 June date 23.
Interest Rates
Interest rates are set based on a nation’s central bank base rate. In the United Kingdom, the
Monetary Policy Committee sets the nation’s base rates via the Bank of England. Base rates had
been maintained at 0.5 percent before the Brexit decision and hence interest rates were slightly
higher. After the Brexit decision, the United Kingdom expected a slump in economic growth and
hence the base rate was cut to 0.25 percent and this lowered the nation’s interest rates. The
following data obtained from “FRED Economic Data” shows the nation’s interest rates months
before and after the Brexit decision.
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
The graph for the data is shown below.