On March 29, 2017 British Prime Minister Theresa May handed EU president Donald Tusk the letter that formally invoked Article 50, triggering the U.K.'s two-year exit plan from the 28-member union. "A little over six months ago, the British people voted for change. They voted to shape a brighter future for our country. They voted to leave the European Union and embrace the world," May's letter to the EU said. (See also, Countdown to Brexit: What Is Article 50?)

"And they did so with their eyes open: accepting that the road ahead will be uncertain at times, but believing that it leads towards a brighter future for their children — and their grandchildren too."

A brighter future for some, sure. However, the water is murkier than ever. Industries and individual firms continue to scramble for analysis on how the break-up will affect them. Hard Brexit or not, the path forward will unsettle many. 

Here we examine the ongoing fallout from the split between the U.K. and Europe: the economic winners and losers. 

Equity Investors

Equity investors prospered in the months preceding the vote as U.K. markets rose to all-time highs, thanks in large part to the cheaper British pound attracting foreign money. However, as Theresa May and the Tories begin negotiations, sentiment has slowly changed as the reality of "going it alone" sinks in. Economic data has gradually turned south, and the rapid rise in inflation has put the Bank of England between a rock and a hard place. With that uncertainty, investors have turned their backs on the U.K. 

In each of the eight weeks preceding the start of the June 19, 2017 negotiations, the U.K. experienced a record amount of investment outflows, and sentiment fell as the nation became the least popular market in Europe for investors, according to Bank of America. Despite the outflows, U.K. equity markets continued to rise. After closing 2016 at 7142 - an all-time high - the FTSE 100 continued its rally into the middle part of 2017, reaching 7558 on June 1. On June 23, 2017, one year after the Brexit vote the FTSE 100 was higher by 1086 points, or 17.1% over the 12-month period. 

It will take years to determine whether or not U.K. equity investors are winners or losers, but they can expect periods of volatility as the economy remains in the hands of political negotiations. 

Banking and Financial Services

The banking sector faces the most uncertain future, and stands to lose the most under a hard Brexit scenario. The U.K. runs a current account deficit with Europe. However, the service sector operates as a surplus — meaning the U.K. exports more than it imports. Of its exports, banking and financial services make up 26%. Under a hard Brexit, where trade falls back to World Trade Organization (WTO) rules, the inability to operate on a level field will potentially impact most, if not all, of these jobs.

Even before May triggered Article 50, banks began to prepare for a worst-case scenario. "This is all in the context of contingency planning," Richard Gnodde, CEO of Goldman Sachs International (GS) said while discussing the firm's decision to begin moving staff out of London. "What our eventual footprint will look like will depend on the outcome of the Brexit negotiations and what we are obliged to do because of them."

Either way, the negotiations may come too late for some banks. Initial reports were that both Goldman Sachs Group Inc. and Citigroup Inc. (C) were targeting Frankfurt as a relocation option, the appeal being cheaper living costs than most of the other alternatives. In April, Bloomberg reported that JPMorgan Chase & Co. (JPM) was scouting both Madrid and Dublin as potential options should a relocation happen. 

By leaving the EU, the U.K. is forfeiting its "passporting​ rights." Passporting gives firms the right to sell their goods and services through the European Economic Area (EEA), which currently consists of the 28 members of the EU plus Iceland, Liechtenstein and Norway, while only being regulated in a single country. 

The notion that the U.K. could join the EEA is good in practice but highly unlikely. Firstly, it requires the U.K. to adhere to the free movement of workers — something that Brexiters campaigned against, and secondly, EEA rules stipulate members are to make financial payments to EU budgets without having any say in decision making. (See also: Where Will London's Banking Jobs Go after Brexit?)

If the U.K. is unable to strike a deal for the financial sector, London's title as the financial hub of Europe will cease. Market insight company MLex estimates 13,500 U.K. companies rely on passporting, many of them without knowing it. Bruegel, a Brussels-based think tank, estimates London could lose 10,000 banking jobs and 20,000 in other financial services. In addition to the job losses, banks could foot a sizeable bill when setting up hubs across the other 27 EU nations. "The cost of restructuring could be as much as €15 billion, with the cost for each individual bank depending on its current geographical footprint and client focus," BCG calculated in a research piece published by AFME. "Amortized over three to five years, this could reduce return on equity for affected banks by 0.5 to 0.8 percentage points, a material impact." (See also: JPMorgan Looks for Post-Brexit European Home)

The Airline Industry

The battle for the airways could be messy as post-Brexit negotiations take place. The creation of the EU saw tourism in Europe grow as low-cost airlines flourished. However, following the triggering of Article 50, the European Commission has said U.K. carriers will be forbidden to travel between European cities and will be left to direct flights in and out of the U.K. Easyjet has called for U.K. officials to sign a bilateral agreement with EU officials to allow the continuation of its intra-Europe flights. 

Under potentially tight restrictions, European airlines would be forbidden to operate flights between U.K. cities. As Article 50 was triggered, Ryanair (RYAAY​) officials said they see a "distinct possibility of no flights between Europe and the U.K." for a period of time after March 2019. 

Airline officials were some of the most outspoken critics through the Brexit campaign. Virgin founder Sir Richard Branson accused the pro-Brexit campaign of misleading voters and said the result would be so detrimental to the British economy that a second referendum should be called. "Thousands and thousands of jobs will be lost as a result of this. Thousands of jobs that would have been created will be lost, and the knock-on effect will be so dire," Branson said after the vote. 

U.K. Retailers 

Retailers in the U.K. have begun to benefit from the Brexit vote. The plunge in the pound, which fell 15% against the U.S. dollar in the weeks following the referendum, sent tourism and spending numbers up. With many analysts calling for further depreciation in the pound, tourism and spending have a bright future.

In December, foreign visitors spent £725 million in U.K. stores, a 22% increase from two years prior. High-end boutiques and department stores were the big beneficiaries. The spending burst came from Asia with Hong Kong shoppers spending 69% more than they did two years ago, and Chinese tourists spending 24% more. 

However, the good times may not last forever. The falling pound has already created inflationary pressure that is squeezing many retailers as input costs rise. In February, one month before May pulled the trigger on Article 50, U.K. inflation rose 2.3%, above the Bank of England's 2% target for the first time in three years. (See also: UK Inflation Hits Three-Year High, Pressure on BoE)

The squeeze has already seen some retailers increase prices. The day Theresa May pulled the trigger on Article 50, Bloomberg reported that French Distiller Pernod Ricard had increased prices in its U.K. stores by an undisclosed amount because the falling pound and rising inflation had reduced profits. 

Food Imports

Food prices could rise by as much as 8% once the U.K. formally leaves the EU, a senior analyst at Rabobank said. 

In 2016, the U.K. imported food and agriculture products worth £47.5 billion, of which 71% came from EU nations. In the interest of protecting its local farming industry, the U.K. might look to impose tariffs, which would drive up prices. However, even if the U.K. opts for a tariff-free deal on food imports (a likely bargaining chip in EU negotiations), Rabobank says the tariff savings will be offset by the falling pound. After sliding 15% against the U.S. dollar since the Brexit vote, Rabobank predicts it will fall a further 5% over the next 12 months. The U.K.'s most valuable imports from the EU include fruit, vegetables and flowers from Spain and the Netherlands, and French wine. 

The People

The U.K.'s exit from the EU has left millions of citizens who live both inside and outside the U.K. in a state of limbo. Directive 2004/38/EC of the EU constitution gives citizens and their families the right to "move and reside freely within the territory of the Member States."

More than three million EU nationals live inside the U.K. and close to one million U.K. residents live within the EU. These people face considerable unknowns in their employment status and contractual agreements with a real possibility of deportation. 

The Bottom Line

When Britons voted to leave the EU, Brexiters campaigned on hard-line immigration and border control. Much like Trump supporters, the Brexiters felt they had lost their identity. However, now as negotiations occur between the U.K. and its former partner, risks to the U.K. economy have never been higher. If policy makers can't strike favorable deals, the U.K. will have a new economic identity, just not the one Brexiters promised.

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