Breaking Down Brexit:
What could it mean for Business in Britain?
On the 23rd of June the people of the UK finally had their say on the question of our EU membership. Over 30m people voted, the highest turnout since the 1992 general election, and in the final tally Leave won by 52% to 48%.
The political reverberations from this seismic decision are still being felt. Prime Minister David Cameron announced his decision to resign on the morning of the result, ardent Leave campaigner Boris Johnson declined to run for the Conservative Leadership, and in recent days UKIP leader Nigel Farage also stepped down from his position.
For now, the position for business owners in Britain is one of uncertainty. We have yet to activate Article 50 of the Treaty on European Union, which would officially inform the EU that we wish to leave. And even when Article 50 is invoked, there would still be a two year period of negotiation before we sever our ties with Europe.
Steps to Growth
Ahead of the vote, our Steps to Growth survey took the temperature of 300 owner-managed businesses (OMBs) around the country on this crucial issue. In all, 49% of the OMBs surveyed said a UK exit from the EU would have a positive or highly positive effect and their business would grow. Conversely, 51% of our owner-managed businesses said that it would have a negative effect, with 30% saying it would force them to downsize. A significant number – 21% - said it could force them to shut down entirely.
And there’s no doubt that the initial impact of the vote on sterling was severe, with the pound falling by over 10% to a 31-year low against the dollar. The currency has fluctuated in subsequent days but hasn’t yet risen to pre-referendum levels. The stock market also took a hit in the wake of the vote, with investors reacting to potential future risks for companies exporting to and importing from the UK.
Ratings agency Standard & Poor's now put the likelihood of recession in the next 12 months at 20-25%, compared to 15-20% in March of this year. While the Governor of the Bank of England, Mark Carney, hinted in a speech last week that action may be required to protect the economy from the immediate effects of the Leave vote, saying, "In my view…the economic outlook has deteriorated and some monetary policy easing will likely be required over the summer."
This could mean an interest rate cut and a new round of quantitative easing, which will almost certainly further weaken the Pound. We’ll know more when the BoE releases its new interest rates and monetary policy statement on the 14th of July.
There is also the likelihood that the European Central Bank may cut its deposit rate again. However, Carney also counselled against reading too much into the short-term impact of the referendum and sees much reason for optimism. He said: "The UK can handle change. Its people are admired the world over for their strength under adversity. The question is not whether the UK will adjust but rather how quickly and how well."
The future for OMB's
Right now, it’s difficult to predict the long-term results of a vote to Leave on owner-managed businesses in Britain, and for the moment we have more questions than answers. For instance, we don’t yet know the new Prime Minster who will have responsibility for invoking Article 50. We may also see another independence referendum in Scotland which, if passed, could trigger a break-up of the UK. And we don’t know what shape the new trade agreements that the UK strikes with the EU will have.
Prior to the referendum, our Steps to Growth report revealed differing levels of optimism for the UK leaving the EU across various sectors. 63% of respondents in the Hotels/Leisure industry said that Brexit would have a positive impact on their business and spur growth. Similarly, 60% of Professional Firms thought it would also have a positive impact. Construction companies were particularly concerned about the potentially damaging effects of Brexit, with 70% of those surveyed saying it would force them to shut down or downsize, and Healthcare was also negative, with 60% of respondents in that sector saying a Leave vote would force them to shut down or downsize as well.
Leaving the EU could allow us to agree our own trade agreements with member countries, which may actually lead to more favourable terms for UK businesses. Conversely, it could lead to the introduction of increased tariffs and customs duties around trade with the continent. However, our survey results suggest that this would not have a direct impact on most of our owner-managed businesses’ day-to-day business, with just 10% of the businesses surveyed saying that 1-25% of their business is EU-derived.
Happily though, our Steps to Growth report showed much reason for optimism among OMBs across the country. The referendum result will undoubtedly lead to fundamental changes in the business environment in the UK. But as the long-term implications of the vote to Leave become clearer, British businesses will continue to rely on their traditional values of quality, hard work, and innovation.
How do you think the referendum result will affect the business environment in the UK? Let us know in the comments.
And read the full Steps to Growth report at https://aibgb.co.uk/steps-to-growth.