5th July 2016

On 23rd June, 2016 the citizens of the United Kingdom (UK) voted to exit the European Union (EU). What is now commonly referred to as ‘Brexit’ sent reverberations through the entire world leaving many with questions as to how this monumental decision would affect economies and political structures throughout the land. Still today, questions linger about how things will play out for the United Kingdom (UK), the European Union (EU), and their respective and collective trade partners.

With Brexit affecting nearly every global economy perhaps no other countries will feel the second-hand effects than the Commonwealth countries, including New Zealand. While the short-term effects have thankfully been limited, the outlook further down the road is considerably foggier. Here are some of the ways Brexit may impact the Kiwi economy.

Although much is unclear now, not even two months since the vote, it’s certain that the vote resulting in the UK’s European Union departure will ripple to every corner of the world. One of the immediate effects of Brexit, as predicted, was the fall of the value of the pound along with the UK markets. The pound reached about a 40 year low prompting the Bank of England to intervene in an effort to stem the tide. This brought on a drop in investor confidence and large withdrawals of money. Another negative for the UK’s exit is that although Britons will ostensibly get to choose what’s best for their country without interference from the European Union, they must now renegotiate and rewrite all of their trade agreements and contracts with trade partner countries. Not only that, but the UK will inevitably trade with some EU countries again, meaning that some of the autonomy they’ve won through Brexit will be lost in the trade negotiations.  

Although Britain and New Zealand are on opposite sides of the earth, the two economies have a strong and historic bond. Take for instance the livestock—mainly beef and lamb—the UK receives via export from New Zealand. Previously, these exports were subject to EU rules and regulations, but now, Britain must regulate the goods they import themselves. This could lead to complications in getting New Zealand beef and lamb into the supermarket. Another impact Brexit is having in New Zealand is the rise of the dollar to the pound. As mentioned above, the pound took a serious hit after Brexit as confidence fell and uncertainty set in. The rising dollar hasn’t helped Kiwi exports and the volatility in the markets could make the dollar more expensive to buy, discouraging investors and tourists alike. This may allow banks to charge higher interest rates on loans as the cost of dealing in dollars increases. With the dollar on the rise, look for cheap UK tour packages to start popping up here and there as more and more Kiwis take that dream UK vacation.

 

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