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12 Jul, 2016 11:08

Some reasons why Brexit is good for Britain

Some reasons why Brexit is good for Britain

While many analysts are focused on Brexit's negative impact on UK's economy, there are positive aspects for Britain if it leaves the EU.

Independent market

Many Brexit opponents say leaving the EU will result in the UK losing access to the single market. However, the UK may develop a market independent from Brussels policy and restrictions. Non-EU countries like Norway, Iceland and Switzerland have their own trade agreements and are doing just fine. UK will also be able to re-negotiate better trading terms with the EU and non-EU countries alike. London would also save billions of pounds in annual EU contributions.

“In the long term, Brexit will herald a major growth-boosting period, as the UK breaks free of the over-mighty EU with its protectionist mindset and establishes free trade and intelligent regulation aimed at UK economic interests,” said Patrick Minford, Professor of Applied Economics at Cardiff Business School.

The UK now has room to clinch new trade deals without seeking the consensus of 28 quarrelling countries.

British pound

There are certainly both positive and negative aspects to a weakening national currency. While British politicians warn the population will become poorer, the weaker pound will also make British exports more competitive. UK exporters can now sell their goods cheaper and increase their profit margins. It can also revive the country's industries.

Britain has had a persistent current account deficit since the early 1980s. In the last quarter of 2015, it reached a record deficit of 7.2 percent of the country’s Gross Domestic Product. Now, given that exports are more competitive, there is a chance the deficit will decrease.

Investors overcoming Brexit concerns

Despite the Brexit uncertainty, Britain's premier stock index, the FTSE 100, rallied to 11-month highs. While analysts on Monday attributed the FTSE's rise to the news Theresa May will succeed David Cameron as Prime Minister, the truth is the index has been surging for the last two weeks after the Brexit vote. The blue-chip index has gained nearly 16 percent since its post-Brexit low on June 24 and is up more than 20 percent from February.

“Theresa May is clearly the market’s preferred choice for Britain’s top job, as evidenced by the reaction that greeted Leadsom’s stand-down statement. May’s lack of interest in rushing to activate Article 50 and her relatively less contentious relationship with the EU when compared to her (now long gone) rivals, as well as the general cheer at the mere fact of the UK once again has a PM is arguably responsible for the rise from the FTSE and pound,” said Connor Campbell, financial analyst at Spreadex.

UK may become a safe haven in the long run

Inward investment may be damaged in the short-term. However, Barclays has said Brexit could see the country becoming a "safe haven" amid a disintegrating Europe. The bank predicted in February that a leave vote could open a "Pandora's Box" that would thwart the existence of the EU. At the same time, Scotland will be less likely to "leave the relative safety of the UK for an increasingly uncertain EU.”

READ MORE: UK govt proposes 15% corporate tax to boost post-Brexit economy

Last week, the UK government proposed lowering corporate tax rate to 15 percent to encourage business to invest in the British economy outside the European Union. Britain currently levies a 20 percent tax on business. The rate is due to be reduced to 19 percent in April and to 17 percent in 2020. A five percent tax cut might make the country one of the most competitive global economies.