Question

Brexit has led to the relocation of many multinational companies from the United Kingdom to continental Europe. This has in turn reduced the demand for real estate and many other local goods and services in the country on a long-term basis.

In addition to its impact on demand, Brexit is likely to lower the productivity of tradables in the UK. The reason is that after Brexit, British producers are likely to face hurdles in their access to the EU as their biggest trading partner, and this limits their ability to exploit the division of labor and economies of scale. What is the likely long-run impact of this change on the real exchange of the British pound? Please make sure to explain the mechanism that supports the answer you provided.

Answer 1

ANS

It is seen that there are many negative short term effects of Brexit in which the fall in the value of Pound Sterling was seen, it happened because there was uncertainity amongst the dommestic as well as international investors which is leading to fall in the interest of the investors towards the investment in UK and which is leading to further more damaging the economy.In the long term there will be negative impacts of brexit as the brexit was done and the losses were supposed to meant as bargining losses but it is seen that in Brexit if the world economy will fall then UK's economy will fall tooo and if the world economy will rise then the UK economy will also rise but not at a rate in which it would have risen if it would have remained in the european union. This will all lead to falll in the demand for the Pound Sterling also the current account balance of UK is in deficit because it was earlier supported by portfolio investement but after Brexit the economy of UK witnessed a serie of low investment rate and due to which the pound falls as a result.Also there wil be loss of no single market and which will demotivate foreign companies for the investment and this will also result in the decline of Sterling.