What's next for the UK explained in 2 quick paragraphs
The news this week that a majority of UK voters opted to split off from the European Union caused immediate market turmoil, but the Britons’ divorce from the EU won’t be a quick one.
The UK’s widely watched vote on Thursday — in which 52% of Britons voted to leave the EU — was an advisory referendum that won’t have an immediate effect and in theory could be ignored by UK lawmakers. But, as a recent Wells Fargo note pointed out, members of Parliament aren’t likely to ignore the will of the people.
These two paragraphs from that note spell out the drawn-out process that will ensue in order for lawmakers to make the people’s will a reality:
So does yesterday’s result mean that the UK will soon be leaving the EU? Not exactly. For starters, the referendum is actually not legally binding. Only Parliament can pass the requisite legislation to leave the EU, and three-quarters of the Members of Parliament (MP) are on record as being personally opposed to Brexit. That said, a MP likely would be committing political suicide if he or she went against the wishes of their constituents on such an important issue as Brexit.
Assuming that Parliament eventually approves legislation to leave the EU, the UK would then begin negotiations with the EU over the terms that would govern most of their bilateral economic interactions going forward. Under the terms of the Single Market, there currently is free movement of goods, services and people between the UK and the 27 other members of the EU (EU-27). The UK and the EU would have a minimum of two years after Parliament approves Brexit to renegotiate new terms regarding trade in goods and services and movement of individuals. In reality, the negotiations could stretch on for longer than two years. In the meantime, a period of uncertainty will set in as the negotiations take place.
It’s that uncertainty that likely sent stock markets everywhere nosediving on Friday, when the Dow (^DJI) plummeted 610 points or 3.4%, as Yahoo Finance’s Sam Ro pointed out.
“Although the uncertainty of the UK’s EU membership vote is now behind us, the uncertainty of how this will proceed is now a real issue,” ING’s Rob Carnell said in a note cited by Ro. “Messy politics in the UK, and an uncertain reaction from the EU in terms of how to treat a departing member, all make for a period of heightened risk aversion.”
Read more:
What the Brexit vote means for the US economy
A single word explains why financial markets everywhere are nosediving
Currency expert warns the British pound faces a ‘grave danger’ in the weeks ahead
The UK may have committed ‘an act of economic self-harm with global ramifications’
One chart captures the night of insanity as the Brexit vote counts trickled in
