Home » Blog » #lifestyle » Britain Leaving the European Union: Consequences for Canada

Last updated on November 22nd, 2016

You’ve probably heard of Britain’s majority vote that it should leave the European Union, leaving Prime Minister David Cameron behind and leading the British Pound down the drain.

Fears of uncontrolled immigration and losing sovereignty through regulations which Brussels imposed on Britain would be reflected in the referendum carried out June 23rd. Despite Brexit’s consequences, the vote to leave still overruled.

As one EU country crumbles, things are bound to get more complicated. Nationalist and protectionist forces in other EU countries start to think whether this was a one time thing, or if they should perhaps even do the same.

European Turmoil Shakes Investors

Stock prices around the world varied immensely throughout the day after the vote; resulting in a surprising vote which polls could not predict and markets could not price accurately.

Major US markets dropped 3.5% into the negatives for 2016. The S&P/TSX composite turned out a tad on the better side, however, by the end of the day it was still off by 1.8%.

As investors hate uncertainty, the referendum result has done the opposite of putting them at ease. This drove investors out of the British pound, and into “safer” currencies; like the U.S. greenback, which cuts into our own currency, the Canadian dollar.

The loony was off more that 1.8% against the America dollar the day after the referendum, and its predicted to stay there for a bit which hampers Canadian companies.

As the U.S. dollar strengthens, this is bad news for Canada’s oil producers. Oil is priced in greenbacks, therefore strength in U.S. currency can lead to commodity weakness. This consequentially raises the chances of a Bank of Canada interest rate cut in the future. (Their next meeting is July 13th)

despite the negatives, since impulsive reactions in such a turn of market fluctuations often backfires, the outcome of Britain’s vote can also provide a window of opportunity for investors that see long term potential.

It Didn’t actually Happen Yet

The earliest Britain can legitimately leave the EU is two years from now. And to do so, it has to invoke article 50 of the European Union Treaty. this would make the EU negotiate its accesses to the UK as a newly non-member state, and how it would newly adapt relations with the rest of the European market.

However, thats not even likely to happen soon as Prime Minister Cameron stated how he plans to leave that option locked away until it reaches his successor. This means Britain might only leave the EU in 2019.

Canadian Businesses Impacted

Stephen Poloz, the Bank of Canada governor has now warned everyone for a long time that unexpected global events can quickly destabilize the weakened Canadian economy. Britain’s vote was very unexpected, as it falls into this category.

Dating back to a common heritage, Canada maintains close business ties with Britain, having cross-ownership of companies and a variety of investments within the two countries.

Canadian corporations invest in U.K. operations to a high degree so they can easily access the free-trade routs which Britain used to enjoy with its parters in the EU. Some of these companies might have to pass through London, Britain’s financial centre, in order to access Europe. This implies upheaval, higher administration costs and reduced profits since Britain has voted to leave the EU.

Individual Canadians Affected

the UK is a very popular travel destination for Canadians, thus, Britain’s exit is definitely going to impact Canadian travel plans to the U.K., along with other European destinations.

As the lower Canadian dollar is going to cost you to get there, the European travel industry will try to convince you that everything is fine. “Done worry, be happy” deals will surround you on your trip to Europe.

For many Canadians, getting around Europe might be harder than before. the U.K. accepts dual citizenship, meaning those with British heritage can have a British and Canadian passport if they chose, as many do.

For example, if someone were to use their British citizenship to go across Europe, this individual would be confident that they’ll have access to the same health care and social services as other EU citizens. However, now that has all changed. Earlier this individual would be able to freely travel anywhere within Europe without restrictions, however, not that Britain is out, restrictions will apply.

A big worry for elderly people would be whether or not their government pensions will continue to be indexed to inflation. Right now, U.K. citizens living in the EU witness their government pension go up every year because of the “single market” precedence.

However, with the vote to leave, the U.K. government will have to decide if they want to continue this practice or treat pensioners like they are retiring to Canada (where their pensions are frozen from departure and not protected from inflation).

Any way you look at it, Europe’s effort to promote a political union through economic integration is in trouble.

#lifestyle | #travel
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