More than 3 years ago when David Cameron became the minister of United Kingdom, he promised that he will put staying in Europe to a referendum and he finally did it. The ones who were saying UK should leave European Union were the majority and after this result David Cameron resigned and Sterling hit 31-years low. Weakening of Sterling will result in decrease of import and consequently inflation will increase.
On the other hand, Central Bank of England in order to tackle inflation may rise the interest rate and it will make mortgages and loans more expensive to repay. The companies will start to cash out and confidence will decrease in the economy dramatically and it will have negative impact on investment and hiring.
What mentioned above are some the possible effects from Brexit for internal economy of United Kingdom but this is not the end of story. It will spread to the international markets. As an evidence, Gold surged more than 5.5 percent and its role of safe haven once again has been highlighted with increase in uncertainty after some periods of neutrality.
But how Brexit can affect the Iran`s economy?
Around 65 percent of Iran`s capital market consists of commodity based companies in terms of market cap. As I mentioned before, this referendum can cause a global recession and as the result we will see less demand for commodities. Although most of commodities trades based on American Dollar and it is anticipated that DXY will strengthen, but decrease in demand will outweigh the appreciation of DXY. Now, the questions which raise in the mind are firstly what is the approach of next government in the United Kingdom in order to tackle recession, secondly how they want to keep the businesses in England and also the professional workforce in the region.
After China, countries in European Union are the main partners of Iran in trading and as it is expected that leaving EU by United Kingdom will weaken the economy of EU in general and therefore this can be a threaten for Iran and the demand for its commodities. On the other hand, most of Iranian commodities trade with Dollar and this can strengthen the purchasing power of Iran in Europe.
In conclusion, the new relationship between United Kingdom and European Union is the big question and based on that we have to see how this relationship is going to change. The major point which seems clear until now is that with current condition, global markets will be in trouble and officials from European Union and the government of United Kingdom should make clear decisions to assure investors that they have a plan in order to prevent recession caused by this referendum.
FAR law firm