What is Brexit? Yesterday, UK citizens voted in a referendum on whether to remain a part of the European Union (EU) or leave, known colloquially as “Brexit”   Brexit prevailed by a 52-48 margin. 

Why did voters want the UK to leave the EU? Generally, voters expressed concern about the loss of British sovereignty, including in the areas of regulation and immigration.

Will the UK immediately be out of the EU? No. Prime Minister David Cameron (who announced his resignation today) or his successor must first invoke terms of a treaty on the European Union, which sets a two-year timeframe for a member country to leave the EU. However, this transition might be acrimonious. EU supporters want to discourage other exits, so they will likely negotiate aggressive exit terms with Britain.

What about Scotland and Northern Ireland? Scotland and Northern Ireland strongly supported staying in the EU and are alarmed by the outcome of the vote.  In fact, Scotland may hold another vote on whether to become independent from the UK.

How does this affect the British economy? The economic impact is uncertain, but experts are tracking the value of the pound sterling, global stock markets, bond yields, British real estate values, and investment and trade coming into Britain. The IMF ranks the UK economy as the fifth largest in the world, representing 4 percent of global GDP.

How does this affect the U.S. economy? The immediate impact is stock market volatility and a flight-to-quality move into U.S. Treasury securities, driving interest rates down to levels not seen since 2012. In the longer term, the greater risk is “exit contagion” that could substantially weaken the EU and the European economy, which has ripple effects on our economy. The UK economy makes up nearly $3 trillion of the EU’s $18.5 trillion GDP.