Hard Brexit means that the UK would likely relinquish access to the EU’s single market including the customs union. Britain would retain sovereign control over trade deals, immigration and law-making within its borders. Future trade partnerships with European nations may be based on World Trade Organisation (WTO) rules.1
Brexit has been in the headlines for months, and British Prime Minister Theresa May is working to trigger Article 50 by March 2017, which will start negotiations on withdrawing the UK from the EU. Within all of the news that has been released recently, you probably heard the terms “hard Brexit” and “soft Brexit,” but you might be unsure of what they mean. To clear things up, we’ve compiled some information on hard Brexit versus soft Brexit and what each one would entail.
What Is Hard Brexit?
Hard Brexit, like soft Brexit, is a term that is being used to describe the potential relationships that may occur after the United Kingdom officially leaves the European Union. There are a variety of arrangements and outcomes that could eventuate depending on how insular Britain chooses to become.
Theresa May has offered up a tough stance and seems to be in support of a hard Brexit that gives the UK more control over immigration. Put simply, hard Brexit, also known as clean Brexit, refers to an arrangement that would give Britain complete control of its borders. Britain would be able to apply laws and create new trade deals within its territory.
Those who support a hard Brexit, such as Dr. Liam Fox, who is the International Trade Secretary, claim that it would be beneficial because it would make the UK a global trading nation. The UK would leave the single market completely and would work with World Trade Organization (WTO) rules initially.
Despite the pros of a hard Brexit, there are also some cons to consider. With regards to trade, it should be noted that countries including Australia and the United States have stated that they would prioritise reaching new trade agreements with the European Union before they would work with the UK. Also, a hard Brexit could add tariffs to British goods and services. Exported cars might be taxed at an additional 10%.1 On top of that, industries like agriculture might end up losing the protections that they have against cheap imports that come from other countries.
A hard Brexit would also cause the UK to leave the customs union. Doing so would create a large increase in the checks that are placed upon goods that move through trading ports, including airports.
What Is Soft Brexit?
As is the case with hard Brexit, soft Brexit comes with its own set of pros and cons, and it also has its own supporters. By taking this approach, rather than a clean Brexit, the United Kingdom’s relationship with the EU would remain similar to what it is today. The goal would be to create new arrangements that closely mirror those that already exist. Therefore, it should not come as a surprise that most people who voted to remain are in support of a soft Brexit.
Under a soft Brexit, the UK would not be a member of the European Union, and it also would no longer have its place within the European Council. Plus, it would end up losing its European Commissioner and MEPs. However, it would still maintain total access to the single market in Europe. Therefore, the services and goods that would continue to be traded with the EU would be traded without any additional tariffs. Also, financial firms would be able to maintain what are known as passporting rights that allow them to operate their branches and sell their services within the EU.
Additionally, a soft Brexit would mean that the UK could stay in the customs union of the EU. This translates to exports not being subjected to the border checks that would take place if a hard Brexit were to occur.
Supporters of a soft Brexit claim that it would be less damaging to the UK’s economy, including the value of the British pound, as well as less damaging to Europe. Theresa May, however, disagrees and wishes to move forward with a hard Brexit.
What Is Likely to Occur?
Thanks to Theresa May, a hard Brexit is most likely to occur. In January 2017, prior to creating a bill that would allow her to move forward with triggering Article 50 in March, she stated that the UK will make a clean break from the EU and its common market. She has no intentions of keeping the UK “half-in, half-out,” nor does she wish to hold onto any “bits of membership” as the UK makes its exit.
What This All Means for Your Financials
Ever since the citizens of the UK voted for Brexit in June 2016, the pound has been fluctuating as a result of the uncertainties created by this bold move. Anyone transferring money overseas, or intending to, should be concerned about how exchange rates will affect the amount of money that they send or receive.
A money transfer service like OFX can help in several ways, particularly when the foreign exchange market is so volatile. In addition to using our currency converter to stay on top of the latest market rates, you can save money on fees whenever you make a transfer.
With uncertainty on the horizon, you can also use the Limit Orders option to set your target exchange rate and give you peace of mind. We’ll transfer your funds as soon as the exchange rate takes effect, even if you’re too busy to put the transfer through yourself. And with our forward exchange contract, you can protect yourself from exchange rate movements by locking in your preferred rate for as long as a full year. So regardless of what happens to the pound in Britain or to the euro in the EU, you can keep more control of your money when you transfer with OFX.
IMPORTANT: The contents of this blog do not constitute financial advice and are provided for general information purposes only without taking into account the investment objectives, financial situation and particular needs of any particular person. UKForex Limited (trading as “OFX”) and its affiliates make no recommendation as to the merits of any financial strategy or product referred to in the blog. OFX makes no warranty, express or implied, concerning the suitability, completeness, quality or exactness of the information and models provided in this blog.