For months, businesses, consumers and authorities in both the UK and the EU have been waiting for the triggering of Article 50, which initiates the Brexit procedure. However, the lack of details due to the mantra “no negotiation without notification,” means that uncertainty has likely been the most mulled over word in media right now.
For months, businesses, consumers and authorities in both the UK and the EU have been waiting for the triggering of Article 50, which initiates the Brexit procedure. However, the lack of details due to the mantra “no negotiation without notification,” means that uncertainty has likely been the most mulled over word in media right now.
Tomorrow is the due date for the UK to initiate the process, and the impact will be both immediate and long term, with lengthy negotiations to take place on the back of already what seems lengthy planning time. Finance Monthly has this week heard from numerous sources across the UK, from experts and specialists in several sectors, to businesses forecasting the opportunities and risks, on what might be once Article 50 is officially triggered. Here’s Your Thoughts.
Theresa May’s plans to start Britain’s withdrawal process from the EU will set off a series of tough negotiations. The complexity of Brexit poses unique challenges, with overall sentiment and fiscal numbers continuing to paint a mixed picture: although forward-looking indicators are still reasonably strong, they have deteriorated since the start of the year and, simultaneously, inflation has registered its highest reading since Q3 2013. In this vein, it’s far too early to realistically assess the potential political and economic impact of Brexit – a real bone of contention will be the controversial departure bill, which may well see the UK pay in excess of £60 billion to officially leave the EU. With negotiations about future EU-UK trade relations expected to take longer than the two years available, it is likely that an interim agreement will have to be struck, and we do not expect full independence to be secured until the 2020s at the earliest.
The public’s interest will focus on what kind of deal Theresa May can strike with the EU, especially as the President of the European Commission, Jean Claude Juncker, has reinforced his position that the UK will not be able to ‘have their cake and eat it’. The EU still seems to have the upper hand in the upcoming negotiations, but a disorderly Brexit would also hurt the remaining 27 members of the bloc (although not as badly as the UK). From an economic perspective, the UK is actually performing just as well as it has done since before the country voted to leave the EU, but it’s unlikely that this strong growth will continue throughout 2017. Politically, events in Europe over the next few months could have an impact on negotiations; elections in France and Germany, should they unexpectedly go the way of anti-EU parties, will likely destabilise the two powerhouses’ control over the European bloc. For now, the priority is to start developing official plans for the UK’s departure from the EU. Businesses must monitor the uncertain and fluctuating economic situation that is to be expected over the next few years, and mitigate risks as best they can.
After the referendum, we have already seen a notable impact on prices, with the inflation rate before the vote hovering just above 0% but now nearing 2%, the official target rate of inflation in the UK. More price rises are imminent with Article 50 being triggered.
Research by Simon-Kucher shows that the severity of price increases passed to consumers has been gradually rising since the referendum. This means that as we move closer to the point at which Theresa May looks like she will trigger Article 50 at the end of this month, companies look set to pull the trigger on increasingly significant price hikes.
But businesses need to be careful. For instance, a survey conducted by Simon-Kucher shows that level of concern about price increases resulting from Brexit does vary within the UK, with 97% of Remain voters concerned about price increases, versus 57% of Leave voters. The research also shows that holidays and grocery bills are feared as the most likely culprits to face price increases. Many people, especially those who support Leave, take a dim view of companies attributing price rises to Brexit.
I think businesses have been pretty clear right from the outset about the deal they want with the EU once we’re officially no longer part of the ‘club.’ What will be interesting is how corporate behaviour changes over the course of the next couple of years. We already know from reports that many are stockpiling cash rather than investing, but a new development is also emerging. Many of our customers are reviewing their supplier strategy with a view to forming partnerships with UK companies in order to reduce Brexit risk and turbulence from the FX markets.
Such a strategy makes sound business sense, but longer term if the UK withdraws into itself commercially it will be much harder to forge trade agreements with China, India, the US and of course the EU. To get the best deal we have to be seen as a global economic force, not an island. Businesses need tangible incentives that will give them confidence to invest both in the UK and abroad.
Rising employment continues to propel the Eurozone region towards 2% growth. Add in inflation and operational gearing, and growth at a company level starts to look interesting. There are some selected good structural growth stories across Europe. No one knows how key political events are going to transpire, and what the stock markets’ reaction to those events, or indeed the effect on the euro, will be. As investors, it is better to stick to what you do know and focus on a long-term investment horizon.
Rob Halliday-Stein, Managing Director & Founder,
We’ve got a lot of uncertainty at the moment and when you look at things and people tend to see gold as a good thing to hold during those times and if you look at Brexit, for example, even though it has not actually happened yet, that could still have a big impact as far as business is concerned. Our most profitable times are always during times of uncertainty.
As a business, somewhat sadly, we always tend to do well at times like that. No one really knows how this Brexit is going to play out over the next two years once Theresa May pulls the trigger to trigger article 50. There are a lot of unanswered questions and a long road to go down. We don’t yet know what is going to happen to UK and EU nationals working and living abroad and those from other European countries that are living and working here in the UK. Indeed, as part of our business, we do employ a few EU nationals so the future for them is somewhat uncertain.
And then there’s the bill for leaving the EU and the estimates are that that could come to around £50bn for our share of liabilities. What will happen to the EU laws that we have been bound by for more than 40 years? Are there similar bills going to have to be rushed through parliament? Theresa May is really going to have to tread carefully here to get the best deal for us upon leaving the EU – otherwise this could end up costing the country dearly.
For me balance of payments is a big issue for then UK right now. We need to be selling more goods and services than those that are bought in from elsewhere. The UK’s 2016 international trade statistics released this month show the deficit of Britain’s balance of payments increased by nearly £10 billion, and is currently just short of £40 billion. This is something that simply needs to be addressed when we go it alone.
However, this is all good for business. With all the uncertainty in the world people still know there’s a very strong case for holding gold as part of their portfolio. It will, at the very least, keep its value and preserve wealth. It may spike much higher than that at points of crisis and then it tends to bounce back a bit.
Mark O’Halloran
Over the next two years the ‘Great Repeal’ will become as a common a phrase as ‘Brexit’ has been in the last two. But Great Repeal Bill is misleading as the government’s key task will be enacting legislation, not getting rid of it.
The adoption of EU legislation is not going to be a smooth process. It is going to be complicated by an expectation that negotiations between the UK, the EU and its member states won’t reach resolution till near the end of the two years, potentially leading to a mad rush to get laws adopted.
Patent law is a prime example of an area that is going to be of shared concern for many areas of UK industry going forward. The Government still appears eager to move forward with both a unified European patent court and a unified European patent, and there is logic for this. British businesses will want the security of knowing that their patents are protected as widely as possible, without the hassle of having to prepare and file applications in multiple countries.
As it is, it is far more expensive to protect designs through patents in Europe than in the US and the new unified European patent court and a unified European patent is aimed to address this. The price we may need to pay, however, is continued EU political influence through, perhaps, the involvement of the ECJ. Despite Brexiteer assurances, we will not be able to have all our cake and eat every morsel of it.
There is much uncertainty in how the extraordinary challenge of Brexit will be handled; and two years for global events to take unexpected turns. At first, don’t expect all that much to change. Theresa May’s Government will be closely watched and scrutinised over the next two years and their remit will be to simply ensure we have working legislation in place for us officially leaving. It is once this formal process is complete that the fireworks will fly.
Owain Walters,
We expect to see some initial volatility or “noise” in the market once Article 50 is triggered at the end of the month, however, there won’t be any significant developments until we learn more about the detail of the negotiations and any deals become clearer. Our advice to businesses is that they take advantage of the remaining two years in which we will have access to the single market to prepare for life outside of the EU. Laying the necessary groundwork to ensure that they have access to international markets and currencies upon our departure is the best way for businesses to ensure that they are successful post-Brexit.
