Answers to the most asked Brexit questions
IG’s Sara Walker was joined by Chris Beauchamp, IG chief market analyst, to take a look at the ten most searched questions on Google about Brexit. Watch the video to see the discussion or read the transcript below.
What and when is Brexit?
Chris Beauchamp: Brexit is the UK's exit from the European Union (EU), the term stands for British exit. It was supposed to be back in March, but it was delayed, so it now should happen on the 31 October. In theory though, it could well be delayed beyond that point. It depends whether we get any kind of deal or whether there is a general election before then. But as things stand that is when we're supposed to leave the EU.
What is the Brexit deal?
CB: The one that exists is Theresa May's withdrawal agreement, which set out the measures by which the UK would leave the EU. It also provided for what's called the backstop, in case the UK deviated – or attempted to deviate – from the agreed rules of that exit.
The transition period will exist for two years from the UK's official date and would see the UK align itself relatively closely with the existing EU rules, in order to provide a smoothness in that period. This would then allow the UK to begin to slowly diverge from the EU's rules.
What is the Brexit backstop?
CB: Yes, the problem with the UK exit from the EU is that it would mean there needs to be some kind of policing on the border between Northern Ireland and the Republic of Ireland. This is because Brexit would mean that the UK has a land border with the EU, which would allow goods to pass in and out without being checked. This could therefore mean that goods do not meet EU standards.
The backstop really was originally designed to just include Northern Ireland, so that there would be no land border in Ireland, but at the British request it was expanded to include the UK.
Now, the EU actually thinks the backstop is quite a good deal for the UK because it mirrors many of the advantages offered by single market customs union. So, they're quite keen for it not to go on too long. But the problem is that some in the UK see it as an unnecessary imposition of EU rules, which wouldn't allow the UK to set out and be this free nation, making its own trade deals.
What does ‘no-deal’ Brexit mean?
CB: The ‘no-deal’ would see the UK, in a sense, crash out of the EU with no deal or no agreement over things like good standards, services regulations, flights, movement of persons, movement of goods, movement of labour, all those things have been agreed over the past 40 years. We would suddenly drop out and it would be as if the UK had never been part of the EU at all.
Then the idea on the pro-no deal side is that it would simply reset relations between the UK and the EU, allowing a new set of negotiations to begin that would preserve the UK's integrity and also allow it to do whatever it wants to do on the global stage.
What is a hard Brexit or a ‘clean Brexit’?
CB: It is similar to a no-deal in most respects, but a hard Brexit might preserve some agreement with the EU and might see the UK paying some of that 39-billion-pound divorce bill. But a hard Brexit would essentially mean that the UK is entirely out of the single market, out of the customs union, beyond the jurisdiction of the European Court of Justice (ECJ) and would allow the UK to do whatever it wanted.
I think it's most likely there will be a no-deal Brexit but undoubtedly there will be some sort of mini deals that will be passed to try and mitigate the impact of a sudden exit.
What is a soft Brexit?
Sara Walker: I suppose this is seen as having the lowest impact on growth and on the UK as we disappear from the EU.
CB: Yes, soft Brexit is there to preserve some kind of close relationship where the UK in the single market, or in the customs union, or both. Some would argue that soft Brexit involves copying things like the Norway model, which sees close alignment with the EU in terms of regulation to some degree. So, we could see the UK borrowing from some agreements with others in order to keep the UK relatively close to the EU and to recognise that – while it is leaving the EU – it still maintains close links in terms of defence, trade and cooperation.
What will happen to the pound after Brexit?
SW: Well, we've seen the market volatility and we keep watching very closely every time Johnson or Corbyn speak.
CB: Well like any other question raised about Brexit I suppose the answer is; it depends. But people looking to trade who are saying ‘We want a more detailed answer’ and I think the assumption is that a hard Brexit or a no-deal Brexit would be negative for the pound because it would imply economic disruption. So, I think it makes sense over the longer term at least to argue for that being a negative factor for sterling.
On the flip side, a soft Brexit would be viewed as a positive for the pound because it would maintain economic links and avoid disruption. You could argue that even in the longer term it could be positive for sterling. But I think the short-term view would say that a sudden exit would be negative for the pound. The problem is, of course, if it’s a sudden exit. If we know it's coming in advance it may not be as negative as people assume.
How will Brexit affect house prices?
SW: Well, we heard [Bank of England governer] Mark Carney saying that a no-deal Brexit could see house prices tumble as much as 35% but a lot of people came back to that and said it was way too pessimistic. But we have seen house prices stall in terms of growth, haven’t we?
CB: House price growth has stalled but it hasn't gone into reverse, if you like. We live in a country where demand far outstrips supply and that isn't going to change regardless of the Brexit deal we have – if one does indeed happen.
I think it makes sense to argue that if a hard Brexit happens and if it hits consumers spending, if it hits wage growth, then you will see a moderation in growth of house prices. Perhaps they will remain static or they decline in real terms over the course next five to ten years it depends how bad a no-deal Brexit may be. Because it may not be bad at all or it may be modestly bad. That's the kind of thing you only know with 30-40 years of hindsight.
I think, yes, a no-deal would probably hit house price growth, whereas a soft Brexit you can argue or make the case that it would be more beneficial for house prices going forward.
What is happening with Brexit?
CB: Well this is the very definition of a fluid situation. At the moment, the UK is still expected to leave at the end of October. If we have an election before then, the result of that election could see either that date honoured or the UK applying for an extension.
Parliament has tried to take no-deal off the table to block the government from seeking a no-deal. It doesn't remove the prospect of no-deal entirely, it has to be said because it could still happen either by accident or the Government could win the election and repeal that no-deal Bill.
But certainly you clearly see the division of the country from there 52/48 result, which is reflected in Parliament with clear factions pushing for a no-deal, for a soft Brexit, the revival of Theresa May's deal or pushing to try to get a second referendum.
So, that's where Brexit is at the moment. I think as you'd expect with such a major issue, it has been an event with so many moving parts that it's almost too hard to keep track of it at any one time.
Could there be a second referendum?
CB: We could do. I think there's always a body in Parliament that would push for a second referendum. And certainly a lot of people think another referendum is that the best way to deal with this because you can argue the longer the debate goes on in Parliament, the more time has passed since the last referendum and people have had a better chance to change their view both ways.
I would stress on that one. New voters will have arrived in the population with different views and that could change the outlook. I'm not sure it would be a slam dunk for remain. Some people will have had their views hardened on that side. Other people will have had more strident views on just voting leave just to get out and get on with it.
Certainly we could end up with another referendum and that then begs the question of how will all the various parties campaign in such a referendum, if it does take place.
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