## How Brexit Was Settled: Reshaping the Political and Economic Landscape Through Market Turmoil

Why did the UK choose to leave the EU? The answer to this question involves more than political stance; it directly impacts the trends in global financial markets. The shocking referendum result in 2016 (52% in favor of leaving) marked the beginning of a years-long economic and political struggle, and its ripple effects continue to shape the pound sterling exchange rate, stock markets, and international trade patterns.

### Origins of Brexit: The Clash Between Economic Anxiety and Political Miscalculations

The fundamental reasons behind the UK's decision to leave the EU can be summarized into three main drivers. First is deep-seated economic dissatisfaction. The 2008 subprime mortgage crisis triggered the Euro debt crisis, revealing increasing structural imbalances within the EU—core countries focusing on production, peripheral countries on consumption—making the existing model unsustainable. Although the UK, not being an Eurozone member, avoided direct crisis, it had to bail out struggling allies, fostering a strong "Euro-skeptic" sentiment among the British public.

Second, political gambles altered the course of history. Prime Minister David Cameron promised a Brexit referendum before the 2016 general election, aiming to attract voters. He did not anticipate becoming a loser in this high-stakes gamble—"a political bet with the nation's future." At that time, mainstream political forces including the Conservative Party, Labour, and Liberal Democrats supported remaining in the EU, and no one foresaw the referendum narrowly overturning the established order.

The immigration crisis was the final straw that overwhelmed the Remain camp. The 2015 escalation of the European refugee influx threatened employment opportunities, diluted education and healthcare resources, and drove up housing prices, directly impacting ordinary people's living standards. Proud of low unemployment, the British public was especially resentful of the additional immigration pressures.

### A Twisting Four-Year Journey: From Referendum to Formal Exit

After the referendum result was finalized, the implementation process proved extraordinarily complex. From June 23, 2016, to January 31, 2020, the UK underwent four years of negotiation deadlock.

After Theresa May became Prime Minister in 2016, she triggered Article 50 of the Lisbon Treaty in March 2017, starting a two-year countdown for Brexit negotiations. However, repeated disagreements over the deal became the core issue. Frameworks such as the Chequers plan, soft Brexit, hard Brexit, and no-deal Brexit were debated back and forth, with no consensus reached.

May's Brexit deal was overwhelmingly rejected by the House of Commons in January 2019 (432:202), and subsequent votes failed again. The border issue between Northern Ireland and Ireland—Britain's only land border after Brexit—became a sticking point, with both sides opposing a "hard border" but unable to agree on a workable solution. It was only after Boris Johnson took office in October 2019 that negotiations gained momentum, leading to a revised Brexit agreement that was ultimately approved.

During this period, the global outbreak of COVID-19 further delayed progress. On January 31, 2020, the UK officially left the EU; during the subsequent 11-month transition period, both sides negotiated a trade agreement, which took effect on January 1, 2021.

### The Dual Impact of Brexit on the UK Economy

The promises behind Brexit included clear economic benefits. Post-Brexit, the UK could refuse refugee influxes, free itself from paying the EU membership fee of approximately 23 million pounds daily, and regain independent political and economic sovereignty, with the opportunity to sign trade agreements directly with more countries globally.

However, the gap between ideals and reality cannot be ignored. While the UK can explore new markets, its position as the EU's largest export partner (46.9%) and import source (52.3%) remains difficult to challenge—exports to the US and China account for only 11.9% and 5.1%, respectively. Post-Brexit, the previously smooth trade flows faced new border checks, tariffs, and compliance costs, causing structural shocks to logistics, manufacturing, and financial sectors. In the short term, the UK economy bears the brunt of trade friction losses.

### Turbulence and Adjustment in Global Financial Markets

The decision for the UK to leave the EU cast a deep water bomb into global financial markets.

**Stock Markets:** After Brexit in 2020, European financial stocks, automakers, and airlines were hit hardest, with market volatility increasing significantly. Although volatility eased after the trade agreement in 2021, cross-border companies such as logistics and transportation firms still faced pains in adapting to new rules.

**Foreign Exchange Markets:** The pound sterling experienced the most dramatic fluctuations. The Brexit referendum itself triggered sharp swings in GBP/USD, with market concerns about the UK’s future directly translating into currency depreciation pressure. After the trade agreement in 2021, the pound temporarily stabilized but soon faced new challenges—during the escalation of the Russia-Ukraine conflict in 2022, GBP/USD lacked upward momentum and was under pressure. However, as global central banks began raising interest rates, market dynamics shifted again. From a macro perspective, 2022 marked a historic turning point for trading GBP, with factors like COVID-19, economic recovery expectations, and interest rate policies profoundly influencing the pound’s medium-term trajectory.

### Common Confusions About Brexit

**Why is the process so lengthy?** The main reasons include the repeated nature of the agreement frameworks (four different plans difficult to unify), internal pro-EU factions within the UK, the complexity of the Northern Ireland border issue, and disruptions caused by the COVID-19 pandemic.

**The fundamental difference between soft and hard Brexit** lies in the degree of economic and trade ties with the EU. Soft Brexit maintains close economic relations but requires compromises (such as allowing EU citizens to settle and access benefits), while hard Brexit severs most ties and renegotiates trade agreements separately. Ultimately, the UK chose a path closer to hard Brexit, incurring larger short-term adjustment costs.

The decision for the UK to leave the EU is now a classic case study in global financial markets for analyzing political risks. From referendum to implementation, from market expectations to volatility adjustments, the full story of Brexit reminds investors that major geopolitical shifts often involve unexpected complexities and lasting market impacts.