Business After Brexit
Now Britain has voted to leave the EU, the effects on business and industry are likely to be wide-reaching with turmoil in the markets and significant financial upheaval that could result in the country suffering from the imposition of further austerity measures. So what have economic forecasters, analysts and business groups suggested that the effect of Brexit will be on the UK’s economic landscape?
The Pound Sterling
One financial forecast has suggested that Brexit could see the value of the Pound Sterling dropping by as much as 30%, although the majority of experts have predicted a fall in the region of 18% to 20%. This will no doubt result in even further rises in the price of fuel as well as vastly inflated prices for foreign holidays. As Britain also relies heavily on imported foodstuffs, the consumer is also likely to suffer from higher food prices and when all of these factors are borne in mind, it is predicted that the average UK household could end up £220 worse off per year.
The Effect on Trade
Luckily, there are some benefits to a fall in the Pound as exports will become cheaper. In the short-term at the very least, the UK’s exporters will experience a boost however at some point in the future, once the exit has been negotiated, they may experience higher tariffs which will form a barrier to trade. Once negotiations have taken place, however, it is possible the tariffs for the EU single market will remain low as the member states would prefer to keep access to the UK’s economy, which is the 5th largest in the world.
Brexit and The City
A number of banks have threatened to leave the City following the Leave vote, with many now reviewing their investment decisions. HSBC may be considering relocating hundreds of jobs to its operation in Paris while JP Morgan have also suggested that a quarter of their UK workforce may be lost. On the other hand, hedge funds are largely pro-Leave, since they thrive in a volatile market and dislike the profit reducing regulation imposed by the EU.
Jobs and Employment
The service sector that relies on EU trade and those sectors which benefit from free movement of labour will be most impacted by the Leave vote, including industries such as tourism, car manufacturing and financial service providers. Those companies that rely on migrants may need to make the change to employing UK citizens if a points based system is employed to limit immigration and this could be problematic if wages remain low, leaving the dilemma of whether or not consumers will be prepared to pay more or whether cafe owners and farmers will be priced out of the market.
Asset Prices and Property
It has been predicted that house prices may drop by up to 18% by 2018, and, although this may prove advantageous to first time buyers, there could well be a shortage of properties unless EU citizens return to their home countries. It is still possible that the Bank of England may raise interest rates however, and this could create large numbers of negative equity property owners, effectively killing the market.
Brexit and Multinational Corporations
Many multinational corporations warned against voting Leave, saying that uncertainty is an undesirable situation which would make them think again about their operations in the UK. While it has been suggested that the UK’s car industry could survive intact due to its depth and breadth across the nation, several foreign owned firms such as Vauxhall, BMW and Toyota have expressed concerns about their future in the country following Brexit.
Funding From the EU
Before Brexit, the UK was one of the primary beneficiaries of funding for science from the EU, with the top 5 pharmaceutical companies subsidising their research with EU cash. Without any commitment to replace this money from the UK, it is likely that these companies may move their facilities elsewhere within the EU.
Farming and Agriculture
Over recent years, farmers have found ways of surviving despite the cuts to EU subsidies, and therefore even if the further cuts which are planned up to 2020 take place, the independent UK government are likely only have to outlay a few million pounds in order to preserve the solvency of the agricultural sector. However the UK’s wheat farmers may find that they are out of pocket, especially if migrant labour can no longer be relied upon. There will also be a need to replace the EU environmental subsidies funding including that for the schemes which are in place to prevent the UK’s farmers from adding excessive amounts of nitrogen to their crops and from flooding rivers with pesticides which are washed off the fields. It is possible that Natural England (and its Welsh, Scottish and Northern Irish counterparts) could fund these schemes in future, however there is some scepticism among environmentalists that there will be spare cash remaining for eco-friendly schemes after Brexit campaigners made speeches that advocated releasing farmers from environmental regulations.