A Comparative Analysis of Brexit's Economic Impact on Three Countries

This report provides a detailed analysis of the economic effects of Brexit on the United Kingdom, Germany, and Spain. The introduction defines Brexit as the UK's exit from the European Union and highlights the resulting market uncertainty. The report examines the impact on exchange rates, interest rates, and stock prices for the three countries, using data from 2016. In the UK, the pound sterling experienced a sharp decline in exchange rates, interest rates were cut, and stock prices fluctuated. Germany saw the Euro appreciate, interest rates were lowered, and stock prices slightly increased. Spain, using the Euro, experienced similar exchange rate trends, with the Euro appreciating. The analysis concludes by summarizing the varying economic impacts of Brexit across the three nations, highlighting the interconnectedness of the global economy and the specific financial challenges each faced as a result of Brexit.

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.

THE EFFECTS OF BREXIT ON THE UNITED KINGDOM, GERMANY AND SPAIN 5
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 (%)
From the data, it is evident that the UK interest rates declined after the Brexit decision due to a
cut in base rates as economic recession was anticipated.
Stock Prices
A stock price also known as a share price reflects the price of a single share of a number of
various stocks available for sale by companies or rather businesses in a given country
(Greenwood and Thesmar 2011, p.471). Months prior to the Brexit decision, share prices for the
United Kingdom were slightly lower as compared to months after the decision. This is because,
after the Brexit decision, the sterling pound declined hence raising the profit for international
sellers dealing with foreign currencies and decreasing the profit for UK-focused businesses. The
following data obtained from “FRED Economic Data” shows the stock prices for the year 2016.
2016 Share Price
January 90.04
February 89.19
March 93.30
April 95.10
May 93.61
June 93.64
July 100.93
August 103.45
September 103.32

THE EFFECTS OF BREXIT ON THE UNITED KINGDOM, GERMANY AND SPAIN 6
October 106.31
November 103.16
December 105.70
From the data, it is evident that share prices months before the Brexit decision were lower as
compared to months after the decision due to the sterling pound decline. The data has been
graphed below.
January
February
March
April
May
June
July
August
September
October
November
December
80.00
85.00
90.00
95.00
100.00
105.00
110.00
Share Price
Share Price
Year 2016
Share Price
Germany
Germany is among the best performing economies in the world. It has been ranked position 14
out of the 44 nations in the Europe region. It is a member of the European Union and hence it is
set to be affected by the final Brexit decision as it is one of the top UK trading partners having a
bilateral partnership of more than €120 billion.
Exchange Rates

THE EFFECTS OF BREXIT ON THE UNITED KINGDOM, GERMANY AND SPAIN 7
The Brexit decision affected the Germany exchange rates in that the Euro currency which is used
by Germany slightly appreciated as compared to Sterling Pound which deteriorated its value. The
following data obtained from “FRED Economic Data” shows the Euro exchange rates against the
US dollar. From the data, it is clear that the Euro appreciated after the Brexit decision as
compared to the pound sterling which declined its value.
2016 Exchange Rate
January 0.92
February 0.90
March 0.90
April 0.88
May 0.88
June 0.89
July 0.90
August 0.89
September 0.89
October 0.91
November 0.93
December 0.95
The data has been graphed below.
January
February
March
April
May
June
July
August
September
October
November
December
0.84
0.86
0.88
0.90
0.92
0.94
0.96
Exchange Rate
Exchange Rate
Year 2016
Exchange Rates

THE EFFECTS OF BREXIT ON THE UNITED KINGDOM, GERMANY AND SPAIN 8
The appreciation of the Euro currency which is evident from the data is likely to lower
Germany’s exports to the UK and increase the UK exports to Germany hence enabling the UK to
have better terms of trade as compared to Germany (Capuano and Stepanok 2016, p.11).
Interest Rates
The Brexit decision led to a cut in interest rates by Germany to a lower level as compared to
months before the decision. This is because Germany anticipated its economy to deteriorate
further in terms of economic growth as it had been recording decreased economic growth
previously. This move was also aimed at improving the nation’s terms of trade with the UK
which stood a chance to benefit from better terms of trade with Germany due to a decrease in
value for its pound sterling. The following data obtained from “FRED Economic Data” shows
Germany’s interest rates for the year 2016.
2016 Interest rate
January 0.43
February 0.17
March 0.17
April 0.13
May 0.13
June -0.02
July -0.15
August -0.13
September -0.09
October 0.00
November 0.19
December 0.25
The data has been graphed below.

THE EFFECTS OF BREXIT ON THE UNITED KINGDOM, GERMANY AND SPAIN 9
January
February
March
April
May
June
July
August
September
October
November
December
-0.20
-0.10
0.00
0.10
0.20
0.30
0.40
0.50
Interest rate
Interest rate
From the data and the graph, it is evident that the interest rates declined sharply after the Brexit
decision up to September before starting to rise again.
Stock Prices
Stock prices indicate the confidence of investors considering the future uncertainty of a nation’s
currency exchange rates in as much as the stock purchase is concerned. The Brexit decision
impacted the Germany stock prices positively as they rose slightly as compared to months prior
to the decision. This is attributed to Euro’s slight appreciation as the pound sterling deteriorated.
The following data obtained from “FRED Economic Data” shows Germany share prices for the
year 2016.
2016 Share price
January 90.35
February 85.18
March 90.19
April 91.53
May 90.32
June 88.58
July 89.41
August 94.29
September 94.27
October 95.16

THE EFFECTS OF BREXIT ON THE UNITED KINGDOM, GERMANY AND SPAIN 10
November 94.19
December 99.25
The data has been graphed below.
January
February
March
April
May
June
July
August
September
October
November
December
75.00
80.00
85.00
90.00
95.00
100.00
105.00
Share price
Share price
Year 2016
Share Price
From the data and the graph, it is clear that the share prices for Germany improved slightly due
to pound sterling decline and this probably increased profit for Germany businesses in the UK
and reduced profit for UK businesses in Germany (Oehler, Horn and Wendt 2017, p.175).
Spain
Spain has a better performing economy although its performance is still below the expected
average at the regional level but above the expected averages at the world level. It is ranked
position 28 out of the 44 nations in the region of Europe. It has been a member nation to the
European Union as well as a close trading partner to the United Kingdom and hence has been
impacted by the Brexit decision.
Exchange Rates

THE EFFECTS OF BREXIT ON THE UNITED KINGDOM, GERMANY AND SPAIN 11
Spain uses the Euro currency. Following the Brexit decision, the Euro currency appreciated
slightly as compared to the pound sterling which deteriorated as businesses faced future
uncertainty. The economy of Spain was anticipated to decline following the Brexit decision. The
following data obtained from “FRED Economic Data” shows the Euro exchange rates against the
US dollar.
2016 Exchange Rate
January 0.92
February 0.90
March 0.90
April 0.88
May 0.88
June 0.89
July 0.90
August 0.89
September 0.89
October 0.91
November 0.93
December 0.95
From the data, it is evident that the Euro currency slightly appreciated after the Brexit decision as
compared to the pound sterling which deteriorated in as much as their exchange rates against the
US dollar are concerned, the data has been graphed below.

THE EFFECTS OF BREXIT ON THE UNITED KINGDOM, GERMANY AND SPAIN 12
January
February
March
April
May
June
July
August
September
October
November
December
0.84
0.86
0.88
0.90
0.92
0.94
0.96
Exchange Rate
Exchange Rate
Year 2016
Exchange Rates
The appreciation of the Euro currency was anticipated to cause unfavorable terms of trade to
Spain while benefiting the UK. This is because the Spanish exports to the UK decreased as the
UK exports to Spain increased as its pound sterling depreciated as compared to the Euro
(Dhingra et al 2016, p.2).
Interest Rates
The Brexit decision led to a decline in the interest rates for Spain. The interest rates were
lowered after the decision as compared to months prior to the decision. This is because an
economic slump was anticipated from the decision and hence the interest rates were lowered to
stir economic activity of the nation. The following data obtained from “FRED Economic Data”
shows the Spanish interest rates for the year 2016.
2016 Interest Rate
January 1.72
February 1.72
March 1.54

THE EFFECTS OF BREXIT ON THE UNITED KINGDOM, GERMANY AND SPAIN 13
April 1.53
May 1.57
June 1.48
July 1.17
August 1.01
September 1.04
October 1.07
November 1.43
December 1.44
The data has been graphed below.
January
February
March
April
May
June
July
August
September
October
November
December
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00
Interest Rate
Interest Rate
Year 2016
Interest Rate
From the data and the graph, it is shown that after the Brexit decision, interest rates in Spain
were lowered sharply.
Stock Prices
The Brexit decision slightly led to an improvement in Spanish stock prices. This is due to Euro
appreciation as compared to the pound sterling which depreciated. The following data obtained
from “FRED Economic Data” shows the Spanish stock prices for the year 2016.
2016 Share Price

THE EFFECTS OF BREXIT ON THE UNITED KINGDOM, GERMANY AND SPAIN 14
January 82.56
February 77.17
March 82.93
April 82.54
May 82.35
June 78.82
July 78.27
August 79.80
September 82.18
October 83.09
November 81.49
December 85.71
The data has been graphed below.
January
February
March
April
May
June
July
August
September
October
November
December
72.00
74.00
76.00
78.00
80.00
82.00
84.00
86.00
88.00
Share Price
Share Price
From the data and the graph, it is evident that the stock prices fell during July but picked at
August and continued to increase but at a slower pace. This benefited the Spanish companies
operating in the UK and decreased the profit for UK companies operating in Spain (Raddant
2016, p.100).
Conclusion

THE EFFECTS OF BREXIT ON THE UNITED KINGDOM, GERMANY AND SPAIN 15
The Brexit decision not only affected the UK economy but also many other trading partners
especially those from the European Union including Germany and Spain. Many nations their
economic decisions accordingly as they anticipated economic slumps. Up to date, many nations
have been affected by the decision and as the final decision approaches economic activity in
many nations has slowed down due to future uncertainty.

THE EFFECTS OF BREXIT ON THE UNITED KINGDOM, GERMANY AND SPAIN 16
References
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bilateral trade (No. 11/2016). Aktuelle Berichte.
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aggregate‐level analysis of the result. The Political Quarterly, 87(3), pp.323-332.
Greenwood, R. and Thesmar, D., 2011. Stock price fragility. Journal of Financial
Economics, 102(3), pp.471-490.
Henderson, A., Jeffery, C., Liñeira, R., Scully, R., Wincott, D. and Wyn Jones, R., 2016.
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Public Policy, 23(9), pp.1259-1277.
Oehler, A., Horn, M. and Wendt, S., 2017. Brexit: Short-term stock price effects and the impact
of firm-level internationalization. Finance Research Letters, 22, pp.175-181.
Raddant, M., 2016. The response of European stock markets to the Brexit (No. 100). Kiel Policy
Brief.