What Is Brexit? Meaning and Impact of the U.K. Leaving the EU

Search Fintrev

Search our guides, reviews and glossary.

Brexit is the United Kingdom’s withdrawal from the European Union (EU). The decision was made in a referendum on June 23, 2016, and took legal effect at 11 p.m. Greenwich Mean Time on January 31, 2020. The name joins “British” and “exit.” In practice, Brexit happened in two steps. The U.K. stopped being an EU member state on January 31, 2020. It kept following most EU rules during a transition period that ended on December 31, 2020, and only then did trade, travel and residence rules change. People who ask “when did Brexit happen?” can therefore get two correct answers.

What Is Brexit?

Brexit refers to both the political decision and the legal process by which the United Kingdom of Great Britain and Northern Ireland ended its membership of the European Union. The term was coined before the vote, modeled on “Grexit,” the possible Greek exit from the euro discussed during the European debt crisis. After the result, Theresa May’s phrase “Brexit means Brexit” signaled that the government would carry out the vote rather than reinterpret it.

The U.K. joined the European Economic Community, the EU’s predecessor, in 1973. Voters confirmed membership in a 1975 referendum. Over the following decades, Britain stayed at the edge of deeper integration. It kept the pound instead of adopting the euro under its opt-out from the monetary union, and it stayed outside the Schengen Area of passport-free travel. When the 2016 vote took place, the U.K. was therefore a full member of the EU’s single market and customs union, took part in its institutions and budget, and was covered by its trade agreements, but it was not part of the eurozone or Schengen.

Leaving the EU meant giving up four things at once:

• Membership of the institutions. British ministers left the Council, British members left the European Parliament, and the U.K. no longer had a commissioner or a vote on EU law.
• The single market. The single market rests on the EU’s “four freedoms”: the free movement of goods, services, capital and people. Leaving ended the U.K.’s automatic access, including free movement of workers.
• The customs union. EU members charge a common external tariff and do not collect customs duties on trade with one another. Outside the customs union, the U.K. sets its own tariffs and negotiates its own trade deals, but goods crossing to and from the EU need customs declarations.
• EU trade agreements and budget obligations. The U.K. stopped being covered by the deals the EU had signed with other countries and stopped paying into the EU budget once its outstanding commitments were settled.

Most of the political conflict between 2016 and 2020 was about how many of these links to keep and on what terms.

How Brexit Happened, Step by Step

The 2016 Referendum

Prime Minister David Cameron called the referendum and campaigned for Remain. On June 23, 2016, Leave won with 51.9% of the vote, or about 17.4 million votes, against 48.1%, or about 16.1 million votes, for Remain. Turnout was 72.2%.

The result was counted across the whole U.K., but the four nations voted very differently:

• England voted 53.4% Leave.
• Wales also voted Leave.
• Scotland voted 62% to 38% Remain, and not one Scottish local counting area voted Leave. Moray came closest at 49.9%.
• Northern Ireland voted Remain.

England holds the large majority of the U.K.’s population, so its vote decided the outcome. Counting only Wales, Scotland and Northern Ireland, Leave would have received less than 45%. Scotland had about 8.2% of the U.K. population and Northern Ireland about 2.8%, so their Remain majorities could not offset the Leave vote in England and Wales.

The result surprised markets that had expected a Remain win. The British pound fell to its lowest level against the U.S. dollar in about 30 years. Cameron announced his resignation the next morning, and Theresa May replaced him as Conservative leader and prime minister in July 2016.

The referendum was advisory in legal terms. Parliament had not written the result into law in advance. Politically, however, all the main parties treated it as a mandate, and the question became how to leave, not whether.

Article 50 and the Two-Year Clock

The legal route out of the EU is Article 50 of the Treaty on European Union, as amended by the Lisbon Treaty. A member state that decides to leave notifies the European Council. A two-year negotiating period then starts. If no withdrawal agreement is in force when the period ends, the treaties simply stop applying, unless every remaining member state agrees to extend the deadline.

No member state had used Article 50 before, so its practical working was uncertain. The closest precedents were not true equivalents. Algeria left the European community when it became independent from France in 1962. Greenland, a self-governing territory of Denmark, left in 1985 under a special treaty.

May’s government first argued that it could trigger Article 50 under the royal prerogative, the executive powers the government exercises without a parliamentary vote. In January 2017, the U.K. Supreme Court ruled that Parliament had to authorize the notification. The same ruling held that the devolved legislatures, including the Scottish Parliament, had no veto over Brexit. The House of Lords amended the resulting bill to guarantee the rights of EU citizens living in Britain. The House of Commons removed that amendment, and the European Union (Notification of Withdrawal) Act became law on March 16, 2017.

May triggered Article 50 on March 29, 2017. That set an initial exit date of March 29, 2019.

Negotiations and Sequencing

Formal talks began on June 19, 2017. The EU’s chief negotiator was Michel Barnier, a French politician. Britain’s first Brexit secretary was David Davis. He resigned in July 2018 and was replaced by Dominic Raab, who resigned in protest at May’s deal on November 15, 2018. Stephen Barclay took the post the next day.

The first dispute was about order. The U.K. wanted to negotiate the divorce terms and the future trading relationship together. The EU insisted on “sequencing”: “sufficient progress” on the divorce first, and only then talks about trade. British negotiators accepted the EU’s approach, a concession that commentators on both sides of the debate read as a sign of weakness. A December 2017 agreement on the main divorce issues allowed the talks to move on.

The 2017 Snap Election

On April 18, 2017, May called an early general election for June 8, despite earlier promises not to hold one before 2020. Polls suggested she would increase the slim Conservative majority and strengthen her hand in Brussels. Instead, Labour gained quickly during the campaign, helped by a Conservative reversal on a proposal to fund end-of-life care from people’s estates. The result was a hung Parliament: Conservatives 318 seats, Labour 262, the Scottish National Party (SNP) 35, and other parties 35.

May stayed in office by agreeing a supply arrangement with Northern Ireland’s Democratic Unionist Party (DUP), which had won 10 seats. That arrangement mattered later. The DUP had campaigned for Brexit and opposed the 1998 Good Friday Agreement, and its support depended on how the Irish border was handled. The weaker majority made May more exposed both to Euroskeptic Conservatives and to her new partners.

In July 2018, the government published a white paper (often called the Chequers plan) that proposed leaving the single market and customs union while creating a free trade area for goods, with the U.K. following EU rules on goods. Davis resigned as Brexit secretary and Boris Johnson resigned as foreign secretary in protest. Jeremy Hunt, who favored a softer Brexit, replaced Johnson.

Parliament Rejects the Deal

On November 25, 2018, the U.K. and the EU agreed a 599-page Withdrawal Agreement covering citizens’ rights, the financial settlement and the Irish border, along with a non-binding political declaration on the future relationship. Under the U.K.’s own law, Parliament had to approve it.

On January 15, 2019, the House of Commons rejected the agreement by 432 votes to 202, the largest government defeat in the Commons in modern history. The main objection was the Irish “backstop,” explained below. On March 11, 2019, May and the EU signed an instrument in Strasbourg adding legal assurances without changing the text, but it did not win over hardline Brexit supporters. The deal failed three times. The EU agreed to delay the exit date, first to April and then to October 31, 2019. May stepped down as Conservative leader on June 7, 2019.

Johnson, Prorogation and a New Deal

Boris Johnson, a former mayor of London and former foreign secretary, became prime minister in July 2019. He promised to leave by October 31 “do or die” and said he was prepared to leave without a deal.

In August 2019, Johnson asked the Queen to suspend (prorogue) Parliament from mid-September until October 14, and she agreed. Critics saw it as an attempt to stop MPs from blocking a no-deal exit. On September 24, 2019, the 11 justices of the Supreme Court unanimously ruled the prorogation unlawful, and Parliament returned. In September, Johnson also expelled 21 Conservative MPs who voted to block a no-deal exit. Defections hit both main parties during this period, and Labour was also dealing with antisemitism allegations against its members and criticism of leader Jeremy Corbyn’s handling of them.

On October 17, 2019, Johnson agreed a revised Withdrawal Agreement. The main change replaced the backstop with a Northern Ireland protocol. Parliament had already passed a law requiring the government to seek another extension if no deal was approved, and it delayed the vote on the new deal, so the exit date moved again, to January 31, 2020.

Johnson then called a general election, the third in less than five years. On December 12, 2019, the Conservatives won 365 of 650 seats with 43.6% of the vote, a large majority built partly on a fragmented opposition. The new Parliament passed the legislation implementing the Withdrawal Agreement.

Exit Day and the Transition Period

The U.K. left the EU at 11 p.m. GMT on January 31, 2020, midnight in Brussels. The EU went from 28 member states to 27.

The Withdrawal Agreement then created a transition (or implementation) period lasting until December 31, 2020. During that period the U.K. was no longer a member and had no seats in EU institutions, but it stayed in the single market and customs union and continued to apply EU law. For households and businesses, daily life barely changed during 2020. The purpose was to give both sides time to negotiate their future relationship.

The Trade and Cooperation Agreement

On December 24, 2020, a week before the transition ended, the U.K. and the EU agreed the Trade and Cooperation Agreement. It applied provisionally from January 1, 2021, and the European Parliament approved it on April 28, 2021. The deal avoided a “no-deal” outcome at the end of the transition, which forecasters expected to be significantly more damaging.

The TCA provides for trade in goods without tariffs or quotas, provided goods meet rules of origin. It does not recreate the single market or customs union. Goods crossing between Great Britain and the EU now face customs declarations, regulatory checks and other paperwork. Services, which make up about 80% of the U.K. economy, received far less coverage than goods, and many questions about the future relationship were left open.

What the Withdrawal Agreement Settled

The Withdrawal Agreement was the divorce settlement. Three issues dominated it.

Citizens’ Rights

The most politically sensitive question was what would happen to EU citizens living in the U.K. and British citizens living in other EU countries. The agreement allowed free movement to continue until the end of the transition period. People already resident could keep their residence rights if they worked, had sufficient resources, or were family members of someone who did. To secure permanent status, they had to apply to their host country. In the U.K., this became the EU Settlement Scheme. Those protections depended on the agreement being ratified, so a no-deal exit would have left them uncertain.

Inside Britain, the issue exposed sharp divisions over migration. Conservatives who opposed the Lords amendment in 2017 argued that guaranteeing EU citizens’ rights in advance weakened Britain’s bargaining position. Supporters said people should not be used as bargaining chips. On the economics, research showed EU migrants contributing more to public finances than they took out, while many Leave supporters saw migration as competition for scarce jobs and housing.

Migration patterns shifted after the vote. A February 2019 official statistics report noted that net migration from the EU had fallen to a level last seen in 2009, and that more citizens from the “EU8” countries of Central and Eastern Europe, such as Poland, were leaving the U.K. than arriving.

The Financial Settlement

The “Brexit bill” was the sum the U.K. owed on leaving. It was not a fee for exit. It covered commitments made while the U.K. was a member: its contributions during the transition period, its share of budget commitments already made but not yet paid, and other liabilities. Against that, the U.K. received EU program funding during the transition and its share of certain assets, including the capital it had paid into the European Investment Bank.

The Withdrawal Agreement set out a method rather than a single figure, which is why published numbers differ:

• In May 2017, Barnier’s team published a document listing roughly 70 entities to be counted. Early reporting put the gross figure at about €100 billion.
• Net estimates attributed to Brussels ranged from about €42 billion to €65 billion.
• U.K. estimates included a net figure of about £34.1 billion and a Downing Street estimate of up to £32.8 billion.

These figures come from different sources, dates and methods (gross vs. net, with or without assets returned, different exchange rates), so they cannot be compared as if they measured the same thing. The fair answer to “how much did the U.K. pay to leave the EU?” is that it agreed to honor its membership-era commitments under an agreed formula, with official estimates in the tens of billions.

The bill was also a domestic political fight. Davis refused EU requests to submit a British method for calculating it and told the Commons in September 2017 that the issue could run “for the full duration of the negotiation.” In July 2017, Johnson called EU estimates “extortionate” and agreed that Brussels could “go whistle.” In a September 2017 speech in Florence, May said the U.K. would honor commitments made during its membership. That opened the way to the December 2017 deal. In October 2019, Barnier confirmed that Britain would pay what it owed.

The Northern Irish Border

The border between Northern Ireland (part of the U.K.) and the Republic of Ireland (an EU member) was the hardest problem in the negotiations. During the decades of conflict in Northern Ireland in the second half of the 20th century, the border was militarized. The 1998 Good Friday Agreement helped make it almost invisible. Shared EU membership mattered here: with both sides in the single market and customs union, there was no need for customs posts or product checks.

Brexit created a trilemma. The U.K. could not simultaneously (1) leave the single market and customs union, (2) keep the Irish land border open, and (3) avoid any checks between Northern Ireland and Great Britain. If goods could cross an open border freely while the two sides charged different tariffs and applied different standards, the border would become a route for smuggling and for goods that did not meet EU rules.

May’s answer: the backstop. The 2018 agreement included a backstop as an insurance policy. If no other solution was found, the whole U.K. would stay in a customs union with the EU, and Northern Ireland would also follow certain single-market rules. The backstop was meant to be temporary, but it could only end with the agreement of both the U.K. and the EU. Euroskeptic MPs feared it could trap the U.K. indefinitely and wanted a time limit or a unilateral exit right, which the EU refused. The DUP objected to any arrangement that treated Northern Ireland differently from the rest of the U.K. This impasse was the main reason May’s deal failed.

Johnson’s answer: the protocol. The 2019 agreement replaced the backstop with the Protocol on Ireland/Northern Ireland. The whole U.K. left the EU customs union. Northern Ireland, however, continued to follow EU rules on goods and EU value-added tax (VAT) rules for goods, with the U.K. collecting VAT on the EU’s behalf. The effect was a limited customs border in the Irish Sea, with checks at Northern Irish ports on goods arriving from Great Britain, instead of a border on the island of Ireland. The Northern Ireland Assembly was given a vote on continuing these arrangements four years after the end of the transition period.

The protocol remained contested after it took effect. In 2023 the U.K. and the EU agreed the Windsor Framework, which revised how checks on goods moving from Great Britain to Northern Ireland work. The basic design, an open land border with Northern Ireland following some EU goods rules, stayed in place.

The politics added another layer. Under the Good Friday Agreement, the U.K. government must govern Northern Ireland with “rigorous impartiality.” Critics argued that relying on the DUP, a party with an overwhelmingly Protestant and unionist base, made that harder in 2017 to 2019.

Why Britain Voted to Leave the EU

There was no single reason. Leave voters cited several overlapping concerns:

• Sovereignty. Supporters said laws affecting Britain should be made only in Westminster, and the slogan “Take back control” summed this up. Britain’s existing opt-outs from the euro and Schengen reflected a long-standing wariness of deeper integration.
• Immigration. Free movement of EU workers meant the U.K. could not set its own limits on migration from other member states.
• Economics and bureaucracy. Leave campaigners argued that EU regulation weighed on business, that the euro area’s debt crisis showed the risks of staying close to the bloc, and that the U.K. could strike better trade deals on its own.
• Money. The official Leave campaign, Vote Leave, said the U.K. sent £350 million a week to the EU that could be spent on priorities such as the National Health Service (NHS), schools and housing.

The £350 million claim shows how much a definition can change a figure. In May 2016, the U.K. Statistics Authority said the number was a gross figure and that using it without accounting for money coming back was “misleading.” A mid-June Ipsos MORI poll still found that 47% of the public believed it. The day after the vote, UKIP leader Nigel Farage distanced himself from the pledge.

Remain campaigners argued that:

• The EU was the largest destination for U.K. exports, so leaving its decision-making process was a serious risk.
• The four freedoms brought economic and social benefits that any replacement deal would only partly preserve.

Both sides largely accepted that leaving would cause some short-term disruption. They disagreed about whether the long-term gains in control would outweigh the long-term costs.

Official Economic Forecasts Before the Vote

Several state institutions backed the Remain side’s economic case. In March 2016, Bank of England governor Mark Carney called Brexit “the biggest domestic risk to financial stability.” In April 2016, the Treasury estimated the long-term cost of three alternatives to membership. The central estimates, measured as the annual difference from staying in the EU after 15 years, were:

The Treasury also published ranges around these central estimates. They measure the gap from a “stay in the EU” scenario. They do not forecast that the economy would shrink by these amounts. A level 6.2% lower after 15 years can still mean growth every year, only slower growth than the counterfactual. Forecasts of GDP levels against a counterfactual are hard to verify later because the counterfactual never happens.

Leave supporters dismissed such projections as “Project Fear.” A pro-Brexit group linked to UKIP argued that even £4,300 per household was a “bargain-basement price” for national independence and secure borders. That was an argument about opportunity cost: accepting that leaving might cost income in exchange for something voters valued more. Johnson also made an economic counterclaim on the eve of the vote, that EU governments would quickly seek a trade deal because of their own commercial interests.

Brexit’s Economic Effects

Britain left the EU at the end of January 2020, but the trading relationship changed only in January 2021. Some effects started much earlier, at the time of the vote, because markets and businesses reacted to expectations.

The pound. Sterling’s fall after the referendum was the most immediate effect. A weaker currency makes exports cheaper for foreign buyers and imports more expensive at home.

Growth and investment. U.K. GDP growth slowed to around 1.6% in 2018 from 2.2% in 2016 as business investment slumped. Growth was 1.3% in 2019. In 2020 the economy contracted by roughly 10%, a fall driven by the COVID-19 pandemic rather than Brexit, followed by a strong rebound in 2021.

Inflation. Firms passed higher import costs on to consumers. Consumer Price Index (CPI) inflation reached 3.1% in the 12 months to November 2017, a nearly six-year high and well above the Bank of England’s 2% target. Inflation eased in 2018 as oil and gas prices fell. The much higher inflation of 2022 and 2023, which peaked above 10% and was still 8.7% in the 12 months to April 2023, followed the pandemic and the energy price shock. Brexit was not the main driver of that later spike.

Jobs. Unemployment fell to 3.9% in the three months to January 2019, a 44-year low. One explanation offered at the time was that uncertain employers preferred to keep and hire workers, which they could later let go, rather than commit to large investment projects. A July 2017 House of Lords report also cited evidence that ending free movement would push employers to raise wages to attract domestic workers, which was likely to lead to higher consumer prices.

Trade. Economists expected Brexit to reduce trade even if Britain signed new free trade agreements elsewhere. Monique Ebell, then at the National Institute of Economic and Social Research (NIESR), estimated that replacing EU membership with a free trade agreement would cut total U.K. trade in goods and services by about 22%, and that leaving the single market would reduce it by 22% to 30%. New deals with other partners were not expected to make up the gap. She estimated a deal with the BRIICS group (Brazil, Russia, India, Indonesia, China and South Africa, a wider grouping than BRICS) would add about 2.2% to total trade, and a deal with the U.S., Canada, Australia and New Zealand about 2.6%. Her reasoning was that the single market is unusually deep at removing non-tariff barriers, the regulatory differences that matter most for services, while most free trade agreements are not.

Who Benefited

The weaker pound helped some sectors. Multinationals listed on the FTSE 100 earn much of their revenue abroad, so the same foreign earnings were worth more in sterling, and their reported earnings rose. Exporters, tourism, energy and some service businesses also gained from a cheaper currency. Outside the U.K., in May 2016 the chairman of the State Bank of India, India’s largest commercial bank, suggested that Brexit could help India by encouraging the U.K. to focus on trade with India once it was free of EU trade rules.

Worked Examples: How the Mechanics Hit Prices and Trade

The following examples are hypothetical and use round numbers to show mechanisms. They are not estimates of actual prices, rates or tariffs paid.

Example 1: A weaker pound and import prices. A U.K. retailer buys a product priced at $100 from a U.S. supplier.

• At an assumed exchange rate of $1.50 per pound, the product costs $100 / 1.50 = £66.67.
• If the pound falls to an assumed $1.25, it costs $100 / 1.25 = £80.00.

The retailer’s cost rises by about 20% with no change in the dollar price. If it passes the increase on, consumer prices rise. The same move makes a U.K. exporter’s £66.67 product cheaper for a U.S. buyer. This is the channel behind both the 2017 inflation rise and the FTSE 100 earnings boost. (The example ignores hedging, which delays the effect for firms that lock in exchange rates in advance.)

Example 2: Tariffs under WTO terms. The EU charges a 10% tariff on imported cars from countries without a trade deal. Assume a U.K.-built car has a customs value of £20,000.

• Inside the customs union, or under a deal with zero tariffs where rules of origin are met: tariff £0.
• On WTO terms: £20,000 × 10% = £2,000 added at the EU border.

Britain exported 78.6% of the cars it built, and about 60% of those went to Europe, which is why carmakers feared the no-deal outcome. The TCA avoided this tariff for cars that meet its rules of origin. Customs paperwork still applies either way, so “tariff-free” does not mean “cost-free.”

Example 3: Gross vs. net contributions. Assume a country’s gross contribution to a shared budget is 100 per week, it receives a rebate of 20 before paying, and 30 per week flows back as program spending in that country.

• Gross contribution: 100
• Amount actually sent after the rebate: 80
• Net contribution after receipts: 50

A pledge to “spend the 100 on our own priorities” overstates the money freed up, because the rebate was never sent and the 30 in receipts would have to be replaced to keep the same programs. This is the distinction the U.K. Statistics Authority drew about the £350 million figure.

What the U.K.’s Trade Options Were

Before the TCA was agreed, the debate centered on existing models for how a non-member trades with the EU. May’s government, in its “hard Brexit” stance after early 2017, ruled out staying in the single market or customs union. Its 2018 white paper admitted that the frictionless goods arrangement it wanted, while staying free to sign its own trade deals, would be “broader in scope than any other that exists between the EU and a third country.” The four precedents were Norway, Switzerland, Canada and plain WTO terms.

The Norway Model: Join the EEA

Norway, Iceland and Liechtenstein belong to the European Economic Area, which gives access to the single market for most goods and services (agriculture and fisheries are largely excluded). EEA members are outside the customs union, so they can sign their own trade deals with non-EU countries.

The trade-off is that EEA members must adopt most single-market rules, accept free movement of people and contribute financially, without voting on EU laws. In September 2017, May called this an unacceptable “loss of democratic control.” Davis said the related European Free Trade Association (EFTA) option had been considered but was “not at the top of our list.” EFTA was once much larger, but most of its members left to join the EU. It now comprises Norway, Iceland, Liechtenstein and Switzerland, and all except Switzerland are also in the EEA.

The Switzerland Model

Switzerland voted against joining the EEA in a 1992 referendum. Its relationship with the EU instead rests on around 100 bilateral agreements that cover much of the same ground. Switzerland accepts free movement of people, belongs to the Schengen Area and follows many single-market rules without much say in shaping them.

That model offered little to Brexit supporters who wanted control over immigration, budget payments and rules. The EU was also reluctant to repeat it, because the patchwork of separate agreements is complex to manage and update.

The Canada Model: A Free Trade Agreement

The third option was a deal similar to the Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada. Such a deal removes most tariffs but leaves customs checks, keeps regulatory barriers in place and covers services only partially.

Timing was the obvious problem. Article 50 allowed two years, and the EU would not discuss the future relationship before December 2017. CETA talks ran from 2009 to 2014, and ratification by national parliaments was still incomplete years later. As of August 2024, 17 member states had ratified it and 10 had not. Even a regional parliament can hold up an EU trade deal: in 2016, the Walloon parliament, representing fewer than four million mainly French-speaking Belgians, briefly blocked CETA on its own. Several U.K. politicians, including Chancellor of the Exchequer Philip Hammond, therefore argued for a multi-year transition, while hardline Brexit supporters resisted any delay.

The comparison with Canada was also limited. Canada already had free trade with the U.S. under NAFTA and its successor, the U.S.-Mexico-Canada Agreement (USMCA), so a deal with the EU mattered less to it. CETA does not cover financial services, one of Britain’s biggest exports to the EU. The U.K. runs a trade surplus in services and a deficit in goods, so a goods-centered agreement fit its economy poorly. May argued in Florence that the two sides could “do so much better” than CETA because they started from identical rules, but she gave few details. Ebell noted that regulations would drift apart after Brexit, so shared starting rules would not last.

The TCA that was eventually agreed sits closest to this model: a free trade agreement with zero tariffs and quotas on qualifying goods, with border formalities and limited services coverage.

WTO Terms: No Deal

If no agreement had been reached, U.K.-EU trade would have fallen back on World Trade Organization rules, with each side applying its standard tariffs to the other. This was the “no-deal” outcome that ministers described as an acceptable fallback, though many observers saw it as a negotiating stance.

Even the default was not simple. The U.K. had been a WTO member through the EU, so it had to separate its tariff schedules from the bloc’s and divide liabilities from ongoing trade disputes. In July 2017, International Trade Secretary Liam Fox said WTO terms would not be “the end of the world,” pointing out that Britain already traded with the U.S., China, Japan and India on that basis. Critics answered that the EU was a far larger and more closely integrated market, and that sectors such as cars would face immediate tariffs, as Example 2 shows.

Leaving also meant losing the trade agreements the EU had signed with other countries, including with 63 developing countries. Fox sought to roll the terms of these deals over into bilateral agreements, but some partners would not offer Britain the same terms. In September 2017, he also said his department had turned away some developing countries seeking talks because it lacked the capacity to negotiate.

Scotland and the Question of Independence

Brexit revived the debate over Scotland’s place in the U.K. Scotland joined England and Wales to form Great Britain in 1707, and the relationship has been tense at times. The SNP, founded in the 1930s, held just six of 650 Westminster seats in 2010. In 2011, it won a majority in the devolved Scottish Parliament at Holyrood, partly on a promise to hold an independence referendum.

The 2014 Independence Referendum

In the 2014 referendum, independence lost with 44.7% of the vote on a turnout of 84.6%. Instead of settling the question, the vote energized nationalist support. In 2015, the SNP won 56 of Scotland’s 59 Westminster seats and became the third-largest party in the U.K. Commons.

After Scotland voted 62% Remain in 2016 and was taken out of the EU anyway, calls for a second referendum grew. They grew louder after the 2017 Supreme Court ruling that the devolved legislatures could not veto Brexit. On March 13, 2017, First Minister Nicola Sturgeon called for a vote in autumn 2018 or spring 2019, timing that coincided with the end of the Article 50 period. Holyrood backed her by 69 votes to 59 on March 28, the day before Article 50 was triggered. After the SNP lost 21 Westminster seats in the June 2017 election, Sturgeon said she would “reset” the timetable and focus on securing a soft Brexit. In 2022, the U.K. Supreme Court ruled that the Scottish Parliament could not legislate for an independence referendum without Westminster’s consent.

What Independence Would Involve

An independent Scotland would face hard economic questions. The fall in oil prices hit its public finances. Scotland’s illustrative geographic share of North Sea revenue dropped from £1.8 billion in 2014-2015 to about £60 million in 2015-2016.

Currency was the other open question. Former First Minister Alex Salmond suggested Scotland could introduce its own currency, either floating or pegged to sterling, and ruled out the euro. Others argued that new EU members are generally expected to commit to adopting the euro eventually. Keeping the pound without a formal agreement would mean giving up control of monetary policy and having no lender of last resort of its own, a central question in any debate about money and monetary sovereignty.

Impact on the U.S. and on Investors

U.S. companies have invested heavily in the U.K. for decades, and U.S.-owned firms are among the largest employers in Britain. In 2021, the U.K. had the largest value added of any country among majority-owned foreign affiliates of U.S. multinationals. Many American firms used Britain as a gateway to the rest of the EU, for sales, asset management and research and development.

Brexit weakened that role, because a base in Britain no longer brought automatic single-market access. Companies with large British operations faced the risk of lower affiliate earnings measured in dollars when the pound fell, and of higher costs for supplying EU customers from the U.K. Financial firms in particular had to reorganize, because U.K.-based banks lost the “passporting” rights that let them serve the whole EU from London.

Investors with exposure to European banks and credit markets faced other risks. One estimate at the time suggested European banks might have to replace up to $123 billion of securities, depending on how the exit unfolded, because U.K. debt might no longer count toward EU banks’ required liquidity buffers. Market reactions to Brexit news, such as the 2016 drop in sterling, also fed through to global equity indexes including the S&P 500.

Could Other Countries Leave the EU?

The Brexit vote encouraged Euroskeptic movements across Europe. A May 2016 Ipsos survey found that majorities in Italy and France thought their own countries should hold a referendum on EU membership.

Italy

Tension between Rome and Brussels grew over Italy’s fragile banks, when the government used public money to protect small bondholders from being “bailed in” as EU rules required, and over its budget. Under the threat of EU sanctions, Italy revised its 2019 budget and cut the planned deficit from 2.5% of GDP to 2.04%.

Hours after the Brexit vote, Matteo Salvini, leader of the Northern League, called for a referendum on Italy’s EU membership. Beppe Grillo, founder of the Five Star Movement, had called for a referendum on the euro but not on the EU. The two parties formed a coalition in 2018 with Giuseppe Conte as prime minister. During the budget standoff, Conte ruled out “Italexit.”

France

Marine Le Pen, then leader of France’s Euroskeptic National Front, welcomed the Brexit result as a victory for sovereignty. She lost the 2017 presidential election to Emmanuel Macron with 33.9% of the vote, and lost to him again in 2022. Macron warned that support for “Frexit” would grow without EU reform. In the European Social Survey, the share of French respondents who wanted to leave the EU fell from 24.3% in 2016-2017 to 16% in 2020-2022.

Since the U.K. left, no other member state has started the Article 50 process.

Distinctions That Are Often Confused

The U.K. vs. Great Britain vs. England. Great Britain is England, Scotland and Wales. The United Kingdom adds Northern Ireland. All four left the EU together, although Scotland and Northern Ireland voted Remain. Northern Ireland is the part with special arrangements.

Leaving the EU vs. leaving the euro. The U.K. never used the euro, so Brexit did not involve a currency change. Claims that Britain “left the eurozone” are wrong.

The EU vs. Schengen vs. the EEA. The EU is a political and economic union. Schengen is a passport-free travel area that includes some non-EU countries, such as Switzerland and Norway, and that the U.K. never joined. The EEA extends the single market to Norway, Iceland and Liechtenstein. These are separate memberships.

Single market vs. customs union. The single market removes regulatory barriers and allows free movement of goods, services, capital and people. The customs union removes tariffs between members and sets a common external tariff. A country can be in one without the other: EEA members are in the single market but outside the customs union, while Turkey has a customs union with the EU for most industrial goods without single-market membership.

Withdrawal Agreement vs. Trade and Cooperation Agreement. The Withdrawal Agreement (2019, in force from February 2020) dealt with the divorce: money, citizens’ rights, Northern Ireland and the transition period. The TCA (December 2020) governs the future relationship, mainly trade.

Exit date vs. end of transition. January 31, 2020, is when the U.K. ceased to be a member. December 31, 2020, is when it left the single market and customs union. Most practical changes date from January 1, 2021.

Hard vs. soft Brexit. These are informal labels for how close the remaining ties are. A soft Brexit would keep single-market or customs-union links, as in the Norway model. A hard Brexit leaves both and relies on a free trade agreement or WTO terms. “No-deal” is narrower still: leaving or ending the transition without any agreement.

Limitations: Was Brexit Good or Bad for the U.K.?

The question has no single measured answer, for several reasons.

1. There is no observed counterfactual. Economists estimate Brexit’s effect by comparing the U.K. with a modeled version of itself that stayed in the EU, or with similar economies. Results depend on the model and the comparison group.
2. Other shocks overlap. The pandemic, the energy price spike after 2021 and global inflation arrived just as the new trading arrangements took effect. Each of them moved GDP, trade and prices far more in the short run than any single Brexit channel.
3. Effects arrive at different times. Currency and investment effects started in 2016. Trade frictions started in 2021. Regulatory divergence builds slowly over years.
4. Some aims are not economic. For voters who valued sovereignty or control of migration, a measured income loss would not settle the question, as the “price worth paying” argument showed.

The economic projections made in 2016 and 2017 pointed to lower trade and output than with continued membership, and the TCA’s customs checks confirm that trade with the EU is less frictionless than before. How large the cost has been, and whether it is outweighed by other gains, remains disputed.

FAQs

The Bottom Line

Brexit matters most to businesses trading with the EU, investors exposed to sterling and U.K. assets, and people living across the U.K.-EU divide. The Trade and Cooperation Agreement kept goods trade tariff-free for products meeting rules of origin, but customs paperwork, limited services coverage and lost passporting rights still add costs. Its overall economic effect remains disputed, because the pandemic and energy shock overlap and no one can observe a U.K. that stayed in.