LOGIN
 
2016 | www.selectasset.com
AS THE WORLD WATCHES, BRITAIN HEADS FOR THE EXIT

Now that the dust has settled and the Brexit bed has been made, Britain is coming to terms with what it means to sleep in it—or to actually leave the European Union. Calls for a second referendum are dying out. Conservative and Labour party leaders have pledged to stand firm in their commitment to follow the voters’ decision. With a Brexit of some form on the horizon, let’s take a look at the current situation and what may come to pass in the future.

Watch out for falling sterling

One of the most immediate and quantifiable effects of the Brexit decision has been a fall in the value of Britain’s currency. The pound sterling (or GBP) was down about 10% from its value just before the June 23 vote. Most leading economists agree that a disengagement from the rest of Europe reduces the country’s growth prospects, leading investors to shy away from the pound sterling.
 
There is concern is that foreign investors, on whom the country’s economy is highly dependent, will take money out of less liquid assets, such as property. As reported in the The Guardian newspaper, a number of UK property investment funds, including M&G Investments, Aviva Investors and Standard Life Investments,were temporarily suspended in the weeks following the Brexit vote, as investors withdrew funds. Conventional wisdom says continued investor nervousness about property is likely to add downward pressure on the pound.
 
For households and businesses, this will cause some pain: a weaker pound translates into higher prices for foreign goods and services. That 10% drop in the GBP’s value has already reached across UK supermarket shelves to items imported from abroad. Given that Britain produces just 60% of the farm produce it consumes, the impact is significant
  
 The Bank of England takes a stand
 

As reported by Britian’s The Independent, UK interest rates have been slashed to a new historic low of 0.25% and the Bank of England (BoE) has pushed the button on another GBP 170 billion of monetary stimulus to stop the economy from sliding back into recession.

Unveiling its most dramatic set of gross domestic product (GDP) growth forecast downgrades in modern history, the BoE said the UK economy will virtually grind to a halt in the wake of the Brexit vote—coming perilously close to another recession.

The Bank’s forecasts include the positive impact of the stimulus package, implying the UK economy would otherwise have returned to recession this year for the first time since the 2008-2009 financial crisis.

Instead, the BoE is now expecting quarterly GDP growth to slump to just 0.1% in the year’s third quarter.

What about immigration?

One of the main campaign arguments used to sway the “Leave” vote was that immigration should be reduced. Since June, however, the true effect of leaving a system that allowed free movement of workers within Europe has started to become clear. The Economist reports that as well as keeping British businesses running, European migrants are employed in important public service jobs: one in 10 doctors and one in 25 nurses is EU-born, for instance. Thousands more work in low-skill, public-sector jobs, from bus drivers to school caterers. Immigration can stretch resources, but it may be much more of a stretch to have fewer EU workers in the economy.

Sifting through the regulations

Distancing itself from Europe will mean huge changes in the way Britain does business with the Continent. The new Conservative leadership says there will be efforts to maintain access to the single market, although to what extent this is possible and how much it will cost is unclear.

Internationally based businesses, such as airlines, will now have to figure out where they stand with regard to Europe-wide travel and access. Firms such as EasyJet, based in the UK but operating extensive continental flights, may consider shifting their headquarters to within the “new” EU.

British pharmaceutical, telecom, energy companies and other organizations that currently operate within EU guidelines for much of their business, must now assess the impact of Brexit on every aspect of their operations. The same goes for foreign companies with ties to Britain. To what extent will they have to adjust their operations to satisfy a new set of regulations?

Pulling the trigger on Article 50

The details of Brexit will depend on Article 50 of the EU’s Lisbon Treaty. Article 50 states that when a country officially requests to leave the EU the country has two years to disengage. When Article 50 is invoked, negotiations must start, and there’s a lot to figure out. It should be noted that most of the bargaining power is in the hands of the remaining 27 EU countries. They will vote on the actual terms of a Brexit. Given the gravity of figuring out the new relationship between Britain and the rest of Europe, these negotiations will not be casual chats over the phone. The Economist points out that with some of the major EU countries— France, The Netherlands and Germany—are heading toward elections in 2017. Thus, to avoid negotiations getting caught up in the domestic politics of those nations, it would be wise to start the process as soon as possible.

Name:
Phone:
Email:
Pref.: