Four turbulent years since Brexit: Why did the UK leave the EU, and what is the market's current outlook?

Brexit has become a reality, but the ripple effects in the financial markets are still spreading.

From the 2016 referendum to the official Brexit on January 31, 2020, the UK took a full four years to complete this monumental change. During this period, three Prime Ministers were replaced, two general elections were held, the Brexit deal was rejected, negotiations stalled, and finally an agreement was reached… This series of events posed both challenges and opportunities for global investors.

The Three Fundamental Reasons for Brexit

To understand why the UK ultimately chose to leave the EU, we need to look at the three driving forces.

Economic dissatisfaction was the first trigger. After the 2008 subprime mortgage crisis ignited the Euro debt crisis, the EU fell into an imbalance cycle of “core countries producing, peripheral countries consuming.” Although the UK, as a core member of the EU, did not join the Eurozone, it was still compelled to bail out debt crisis allies, which fueled public “Euroscepticism.” Data shows that before Brexit, the UK paid up to £23 million daily in EU membership fees, a heavy burden that increased taxpayers’ pressure.

Political gamble was the second factor. During the 2016 election, then-Prime Minister David Cameron faced threats from the Labour Party. To bolster support, he promised to hold a referendum on Brexit if re-elected. Cameron supported remaining in the EU, expecting the referendum to confirm the UK’s loyalty to the EU, but he lost the gamble. The Leave camp won with a narrow 51.9% majority, and Cameron resigned immediately. This political gamble, using the nation’s future as stakes, drastically changed the UK’s future.

Immigration crisis was the last straw. After 2015, a wave of refugees swept across Europe, causing significant social impact in the UK—refugees taking jobs, diluting education and healthcare resources, and driving up housing prices. The UK, proud of its low unemployment rate, watched helplessly as immigration threatened its living standards. Remaining in the EU meant accepting refugees, which became a key reason many low-income citizens chose Brexit.

The Long Process of Brexit: From Referendum to Reality

The decisive moment in 2016

On June 23, the referendum results shocked the world: 52% supported leaving, 48% supported remaining. This narrow victory ushered in four years of uncertainty for the UK. In July, Theresa May became Prime Minister, the second woman to hold the position in the UK.

Official start in 2017

On March 29, the UK government formally triggered Article 50 of the Treaty on European Union, starting the Brexit process. This marked a two-year countdown, requiring the UK and EU to reach an agreement by March 29, 2019.

2018-2019: Negotiation twists and turns

Negotiations were fraught with difficulties. The EU proposed four options—Chequers plan, soft Brexit, hard Brexit, and no-deal Brexit—but the UK and EU could not reach consensus on the Northern Ireland border issue. Theresa May’s Brexit deal was rejected three times in Parliament, with the most severe rejection in January 2019—432 votes against to 202 votes for—setting a record for the largest parliamentary defeat in UK history.

A turning point in 2019

On July 24, Boris Johnson became Prime Minister, bringing new momentum to negotiations. On October 17, the EU and UK finally agreed on a revised Brexit deal, including a revised Irish Protocol and political declaration. In December, the Conservative Party won a landslide victory with over 78% support—the highest since 1987.

The final step in 2020

On January 23, the UK Parliament approved the European Union (Withdrawal Agreement) Act. On January 31, the UK officially left the EU, entering an 11-month transition period. When the transition ended on December 31, 2020, the trade agreement between the UK and EU took effect, ushering in a new era for GBP/USD trading.

The Double-Edged Impact of Brexit on the UK

Potential positive effects

Brexit grants the UK true political and economic autonomy. No longer bound by EU regulations, the UK can independently negotiate trade agreements worldwide, no longer limited within the EU framework, opening new diplomatic space.

Immigration policy also gains independence. The UK no longer has to accept EU refugees and can adjust immigration policies flexibly based on economic needs, easing employment and resource pressures.

The savings of £23 million daily in EU membership fees can be redirected to domestic infrastructure and social welfare.

Challenges and negative impacts

However, the reality is more complex. The EU is the UK’s largest trading partner, accounting for 46.9% of exports and 52.3% of imports. In contrast, the US accounts for only 11.9% of UK exports, and China 5.1%. Post-Brexit, the zero tariffs and barrier-free trade within the EU framework disappeared, requiring the UK to renegotiate trade terms with the EU.

Major industries like automotive manufacturing, financial services, and aviation have felt the pain of new regulations. Cross-border logistics face new customs procedures. Many European financial institutions have moved operations out of London—European Banking Authority relocated to Paris, European Medicines Agency to Amsterdam—these are the economic centers lost.

How Brexit Shook the Global Financial Markets

Stock market ripple effects

After the UK officially left the EU in early 2020, European stock markets experienced noticeable adjustments. Financial stocks, automotive manufacturers, and airlines saw price fluctuations. These were not merely technical corrections but market re-pricing trade risks and economic outlooks.

Following the trade agreement in 2021, uncertainty eased somewhat, but stocks of companies involved in cross-border trade still needed time to stabilize. Logistics and transportation firms were especially sensitive due to new trade rules.

Volatility in GBP exchange rates

GBP/USD exchange rate became the most direct market indicator of Brexit’s impact. In early 2020, Brexit uncertainty pushed GBP lower. After the official departure on January 31, GBP experienced sharp fluctuations as markets digested new trade and economic prospects.

In early 2021, following the trade deal, GBP stabilized somewhat, but COVID-19, global central bank policy shifts, and the Russia-Ukraine conflict continued to influence the exchange rate. Particularly in early 2022, with escalating Russia-Ukraine tensions, GBP/USD lacked upward momentum, and market risk appetite declined.

However, as global central banks raised interest rates, markets began reassessing GBP’s investment value. From 2022 onward, GBP/USD became a key focus for traders, as interest rate differentials and risk aversion reshaped the currency landscape.

Structural changes in the forex market

Brexit altered the risk structure of forex trading. GBP no longer benefits from being an “EU core currency” and must find its place anew amid geopolitical and trade shifts. Macroeconomic factors, interest rate policies, and geopolitical risks now have unprecedented direct impacts on GBP.

The Most Common Questions from Investors

Why did Brexit take four years?

Mainly due to three reasons. First, the Brexit deal itself was highly contentious, with significant disagreements between the UK and EU over hard, soft, or no-deal Brexit options, making quick consensus impossible.

Second, domestic political divisions in the UK were severe. Besides Boris Johnson’s Conservative pro-Brexit stance, many Labour and Liberal Democrat MPs favored remaining, leading to ongoing parliamentary deadlock.

Third, the Northern Ireland border issue was extraordinarily complex. Post-Brexit, Northern Ireland and Ireland would become the only land border between the UK and the EU. Both sides wanted to avoid a “hard border” with customs checks, but implementing a soft border without a simple solution became the biggest sticking point.

Additionally, the COVID-19 pandemic disrupted negotiations, causing economic standstill and raising fears that an agreement could not be reached within the transition period.

What is the difference between soft and hard Brexit?

These terms reflect the degree of economic and political separation between the UK and the EU after Brexit.

A soft Brexit implies that, despite leaving the EU political framework, the UK maintains close economic ties with the EU, such as allowing EU citizens to access benefits and adhering to some EU rules. This approach preserves most economic conveniences.

A hard Brexit involves a complete severance. The UK and EU no longer follow common rules, and most ties are cut. Future trade relations require new agreements, involving tariffs, customs checks, and regulatory divergence. The UK’s chosen approach lies somewhere in between, maintaining certain economic links but losing political integration.

Brexit’s causes are complex and multifaceted, but the core drivers are economic dissatisfaction, political gambles, and immigration crises. After four years of negotiations, the UK finally gained political autonomy, but at the cost of increased trade barriers and structural adjustments in financial markets. For investors, GBP, UK equities, and cross-border trade assets now enter a new era of risk-reward assessment. Brexit is not the end but the beginning of long-term reshaping of the UK’s financial landscape.