It’s been a few years since Brexit officially happened, but the aftershocks are still being felt across the European Union. If you thought Brexit would be a one-time event with a quick resolution, think again. Even in 2023 and looking ahead into 2024, the consequences of the UK’s exit from the EU are still reshaping financial markets and trade relations across Europe. But, how exactly?
The Financial Markets: No Longer Business as Usual
Remember when London used to be the financial hub of Europe? Well, Brexit has kind of shaken that up. While the city is still a financial powerhouse, a lot of business that used to flow through London is now moving elsewhere. Major banks, insurance companies, and asset managers are setting up shop in places like Frankfurt, Paris, and Amsterdam.
Why? Because after Brexit, UK-based financial firms lost their automatic access to the EU market. That’s a big deal. Before, a bank in London could serve clients in Berlin or Madrid without having to jump through any regulatory hoops. Now, they need separate EU licenses to operate in Europe, and that’s costly and time-consuming .
In 2023, financial firms are still adjusting to these changes. While London hasn’t completely lost its status as a major player, it’s no longer the default gateway to Europe. The European Central Bank (ECB) and regulators in the EU are also pushing for more financial activity to be handled within the bloc, meaning fewer big deals are going through the UK . This shift has led to the rise of alternative financial centers, especially Frankfurt, which is becoming more attractive to global banks looking to stay within the EU’s regulatory framework .
Stock Exchanges: The Race to Stay Competitive
Another interesting development is the impact on stock exchanges. Before Brexit, the London Stock Exchange (LSE) was the go-to place for companies across Europe to list their shares. Now, post-Brexit, some firms are choosing to list in Paris or Amsterdam instead. The LSE is still a major player, but it’s facing increasing competition from exchanges inside the EU .
For example, Amsterdam’s Euronext has seen a surge in listings and trading volumes. It’s a clear winner in the post-Brexit landscape, as more firms and traders look to stay inside the EU’s borders for easier access to the bloc’s financial markets. This shift is pushing the London Stock Exchange to innovate, but it’s tough when the regulatory environment in the EU is starting to favor local exchanges .
Trade Relations: Not Exactly a Smooth Transition
Financial markets aren’t the only thing impacted by Brexit—trade relations between the UK and the EU have also been dramatically altered. And let’s be honest, the transition hasn’t exactly been smooth. In 2023, businesses on both sides of the English Channel are still dealing with new tariffs, customs checks, and a whole lot more paperwork than before.
The Trade and Cooperation Agreement (TCA), which governs post-Brexit trade between the UK and EU, is complex. While it prevents tariffs on most goods, it doesn’t cover services—one of the UK’s strongest sectors. That means UK businesses that export services, such as finance, law, or digital products, face significant barriers when dealing with EU customers .
For goods, the situation is better, but not by much. British exporters are dealing with increased border checks and delays, and this has caused frustration, especially in industries like food and agriculture. On the EU side, some companies have been hesitant to trade with the UK due to the complications and costs of new customs procedures .
The Impact on Supply Chains
Supply chains have also taken a hit. Before Brexit, goods flowed freely between the UK and EU, but now, supply chains have become more fragmented. This has affected industries like automobiles, pharmaceuticals, and manufacturing, which rely on cross-border components. In 2023, businesses are still trying to adjust, but the longer lead times and increased costs are taking their toll .
Some companies have chosen to relocate parts of their operations to within the EU to avoid these disruptions. For example, automakers like Honda and Nissan have scaled back UK production and are focusing more on their European plants. Meanwhile, pharmaceutical companies are navigating a complicated web of regulations that are making it harder to move products smoothly between the UK and the EU.
EU’s New Trade Strategy: Diversifying Away from the UK
One of the biggest takeaways from Brexit for the EU has been the need to diversify its trade relationships. While the UK used to be one of its largest trading partners, the EU is now looking elsewhere. In 2023, we’ve seen the EU sign new trade deals with countries like Canada, Japan, and Australia to reduce its reliance on the UK.
This shift isn’t just about reducing dependency—it’s also about building new alliances. The EU has doubled down on its European Green Deal, aiming to become a global leader in clean energy and green technologies. In this context, new trade deals are helping the EU access key resources and technologies that will support its ambitious climate goals. The UK, on the other hand, is working hard to strike its own trade deals, but it’s still a long way from replacing the level of trade it used to have with the EU.
A Tough Road Ahead for Both Sides
It’s clear that Brexit’s impact on financial markets and trade relations is still unfolding, and 2023 shows no sign of this slowing down. The UK is trying to adapt and find its footing outside the EU, but it’s a difficult path. Financial services, once the backbone of London’s global standing, are now facing stiff competition from within the EU. Trade has become more complex, and businesses are having to rethink their entire supply chains.
Meanwhile, the EU is also adjusting to life without one of its biggest economies. The bloc is working to diversify its trade partnerships, strengthen its financial centers, and reduce its reliance on the UK. But even with all these efforts, the economic ties between the UK and EU run deep, and fully untangling them is proving to be a long and bumpy road.
Looking Ahead to 2024
As we look forward to 2024, the relationship between the UK and EU is likely to continue evolving. Financial markets will see more shifts as companies decide whether to base themselves inside or outside the EU. Trade relations will remain challenging, especially as both sides adapt to new trade deals and evolving regulations.
The impact of Brexit is far from over, and both the UK and EU will need to continue adapting to a rapidly changing economic landscape.
