How did it impact the economy?

The fall of the Pound

One thing that investors could not predict was the fall of ‘Remain’, the vast majority of investors back in 2016 predicted that at the referendum it would be voted that the UK would not leave the EU and that ‘Remain’ would win. Unfortunately for them the exact opposite happened and ‘Leave’ won. In the fear that the UK would lose access to the European Single Market the British Pound dropped 10% in one night. That day marked a  new beginning in UK’s history as on that day the Pound reached its 31 year low, below the value of the infamous ‘Black Wednesday’ of 1992. This was not an accidental currency dip that would regain its 10 lost percent but it was a reaction to a certain legal uncertainty regarding the UK’s trading and legal framework. 
"The oversight of the UK’s financial system is now in our hands... but a period of uncertainty and adjustment will follow."  Mark Carney (Governor during referendum) immediately after referendum
"Brexit has led to a reduction in the openness of the UK economy... which has implications for the currency's value in the long term." Andrew Bailey (current Governor) shows that the relation with EU changed fundamentally
​
The fear of No-Deal was one of the main reasons why the Pound and the UK’s economy took this big blow. During the years of parliamentary deadlock there was this constant fear that the departure would happen without a trade deal and actually every time, when rumoured negotiations stalled the Pound fell. No deal meant imposing WTO tariffs and severe non-tariff barriers, which would have led to countless and immediate tariffs and a lot of border chaos.

As the UK parted ways with the EU they lost contact to the European Single Market which eventually forced banks to move their assets to other global financial hubs instead of London like Paris, Frankfurt or Dublin in order for them to be able to operate in the Eurozone.Analysts estimated that the moved assets were in the midst of 1 trillion pounds which reduced the global demand for Pounds making them weaker and reducing London’s dominance over the financial world. This was part of the ‘Project Fear’ predictions that were eventually dismissed by ‘Leave’ and Michael Gove and while the dismissal made by ‘Leave’ regarding the economy collapsing immediately after the departure was correct, pro-EU experts were correct when they predicted major structural shifts in the British economy and financial sector.

One pretty ‘bold’ move that Brexit did was abolishing the 45% Top Rate of Income Tax back in 2022. Their view was to promote competitiveness in the business area and to return London to its previous glory as a financial powerhouse. The massive problem that the UK encountered by lowering taxes so much was the incoming debt that they were about to face. Many investors believed that they would not be able to pay this massive debt that they were getting into therefore the pound plummeted again, but this time to 1.08 USD, the lowest point of the British Pound since 1985.
​There were many promises made by the government like a plan to help citizens fund energy bills but also lower the taxes, so they were losing money, but still decided to spend more? Truss and Kwateng refused a report made from the OBR to see the flaws in the budget and there were many. As a result of this absurd behaviour, many investors got frightened and that was the main reason why the economy experienced such a hit, if it was up to me I would call it more of a knock down from which they are still getting up.
The massive tax cuts (45 billion pounds ANNUALLY to be exact) plus the energy price guarantee they offered (100-150 billion for two years) build up to the national debt which was already massive as of the COVID-19 pandemic which resulted in 98% Debt-GDP ratio, which meant that their debt was almost the same as their annual income. Because of this debt the interest rate of Gilts (bonds) jumped from 3.5% to 5% which resulted in billions of pounds added to the UK’s annual interest payment making the debt unsustainable. Then the Bank of England stepped in with 65 billion pounds to stop the pension funds from collapsing.
All those promises resulted in a massive U-turn made by Jeremy Hunt who was appointed to get them out of that rabbit hole they had gotten themself into. Remember Michael Gove and his comments regarding the need of experts? Well, that backfired as exactly the experts at OBR which Hunt returned in order to check the math, so that investors were assured that the government were fully using their resources rather than blindly guessing. Hunt also completely disregarded the promises made by Truss and cancelled the tax reduction.
Once Rishi Sunak was appointed as prime minister he and Hunt did the only thing that could save the economy.They made cuts in public services worth 30 billion pounds, they announced 25 billion pounds in tax increases. Their goal was simple, LOWER the percentage of Debt-GDP ratio. In the end those ‘great’ post-Brexit economic policies only harmed the people. Despite the fact that they were struggling the Pound got back from nearly 1 USD to 1.20 USD within weeks. Now the UK is experiencing its highest tax burden since WW2.
​

Rise of the Pound

After Boris Johnson won the general election and got a 80-seat majority making his and the policies of ‘Leave’ achievable as there was no more parliamentary deadlock, everybody as well as investors knew what was going to happen as Johnson held the parliament in his right hand and under Johnson a ‘No-deal’ departure was unlikely to happen. Because of this many investors could have easily predicted future campaigns so that the Pound would not decrease its value and actually at the night of the election in 2019 the Pound rose to its highest point in 3 years showing that the 80-seat majority that ended the long parliamentary deadlock was worth it.
​
On Christmas Eve 2020 something happened, something that solidified the Pound as a currency. On that day a deal was made the Trade and Cooperation Agreement (TCA) which helped the UK trade with the EU without tariffs and not follow WTO’s stricter trade rules. This way they proved that despite the departure they would still maintain a friendly relationship. This deal gave investors the comfortability to buy Pounds again which was a reason for the Pound to rise again.

As the UK was no longer tied to the European Central Bank, the Bank of England was able to raise interest rates rapidly and more aggressively to fight inflation. With higher interest rates foreign investors often get attracted and begin working with the Bank of England to get better returns on their investments, which pushes the value of the Pound up.