What does Brexit mean for doing business in Europe ?

What does Brexit mean for doing business in Europe?

Brexit is happening – the UK has decided to break free of the European Union, but what does this mean for anyone doing business with our neighbours on the Continent?

The EU accounted for 44% of the UK’s exports and 53% of UK imports of goods and services in 2015. But when the nation voted to leave Europe in the referendum, we began a long process of change which will involve a complex series of negotiations with Europe. In the meantime, the business community is wondering how this will impact on their everyday lives over the next few years.

My view is that we shouldn’t panic. Things certainly won’t change over-night, as there are countless challenges to be thrashed out by the politicians on both sides of the divide before we can sever ties altogether.

Sting in the independence tail

Unfortunately, like the unruly schoolchild banished from the class, there will undoubtedly be wide-ranging consequences to the UK’s decision. These will become apparent over time. We might expect to have things all our own way from here, but the reality is that Europe will want to make an example of us to chasten other member states who might be dreaming of their own referendum plans. The EU will be keen to avoid a domino effect being triggered by our exit: and what did we expect?

Even experienced politicians couldn’t predict the outcome, what we do now know is that whoever becomes our next Prime Minister, he or she faces the prospect of months or even years spent untangling Britain from the EU web. We may even end up saying goodbye to the best of both worlds. While we will retain control over our currency and economy, these are likely to both become considerably weaker. The EU will continue to act in its best interests and we will be on the outside looking in, having no say on matters that could affect our future prosperity.

Time for contemplation

In the months leading up to the vote, the emphasis on both sides was on emotional campaigning. Today, business owners just want to know the facts. We now face a lengthier period of uncertainty which may translate into economic paralysis and self-preservation if we’re not cautious. And we may see the multitude of negotiations and decisions which now need to be made may put us in limbo. We may even possibly enter into another period of recession. And I’m not alone in thinking that – George Osborne and Mark Carney have already been quoted in the press suggesting this is a distinct possibility.

Some facts of our Brexit

The potential effects of leaving the EU are too extensive to cover here, however, many pundits have for months been predicting that Sterling is going to weaken significantly against the Euro, an opinion that seems to have kicked in with immediate effect. Furthermore, Brexit means less foreign investment in the UK as well as a reduction in tax revenue for the government because of lower demand in the economy and companies moving their operations to mainland Europe.

By closing our borders with the EU and restricting the movement of people coming here to work, we’ll be cutting off our nose to spite our face. Many businesses all over the UK rely on skilled and unskilled workers from different European countries and this source of labour will no longer be available once the ink has dried on our resignation letter.

One positive side effect that an exit vote may deliver to Britain is a reduction in house prices. We may see homes become more affordable for first-time buyers across the UK. And house prices have an impact when companies want to expand and attract new talent and specialist skills to their geographical area.

The future course of the UK is set

While there was an economic slowdown in anticipation of a Brexit, now it has become fact and we can expect this process to accelerate. It will have more of a prolonged effect and, against a backdrop of high levels of government borrowing and the possibility of losing thousands of jobs in the City of London to other EU countries, there could be dangerous economic consequences lying ahead.

According to Open Europe, the UK’s exit will probably result in a negative impact on its economy in the region of 0.5% – 1.5% of GDP in the long-term. Less foreign investment in the country means fewer jobs, lack of support for the currency and less tax revenue for the government because there would be less demand in the economy.

Markets will see increasing volatility

British investment firms and banks can currently trade freely in Europe. Following a Brexit, these financial services firms will instead need to set up subsidiary companies in Europe to trade, which will have to be fully capitalised. Furthermore, large financial institutions will create new jobs inside the EU rather than inside the UK. This is, in effect, a job transfer and as a result we’ll see many operations move to Europe. It’s going to be harder to do business. I believe Europe will also suffer and the markets will suffer and we’ll see much greater volatility as a result.

Where now for the UK?

HM Treasury analysed the potential long-term economic impact on the UK if it left the EU. Published before the result was known, these included;

• Membership of the European Economic Area, like Norway
• A negotiated bilateral agreement, similar to those enjoyed by Switzerland, Turkey or Canada, or
• Membership of the World Trade Organisation without any specific agreement with the EU.

The report highlights that, “No country has been able to negotiate any other sort of deal, and it would not be in the EU’s interest to agree one.” However, if Europe raises tariffs, what can we do to retaliate? Now we’ve decided to leave, there will be less international trade. It cannot go up, it can only go down. Big business will be pushing for the exit decision to have little or no effect, but politicians often seem to win on European matters and I firmly believe the UK will be made an example of to deter other countries from ‘jumping ship.

Trading examples

Trading relationships will certainly change, but the big knock-on effect may be that people buying from Europe in future need to meet additional standards imposed on UK exporters, introduced on environmental grounds, for instance. I can see this being a particular issue and if we don’t comply, our European peers simply won’t trade with us. A law to bring in lower powered toasters and electrical goods was being deferred until after the vote. Trade barriers can be put up tactically using legislation such as that mentioned above.

The only thing anyone can say with any certainty about the future of the UK outside of the EU is that it will be filled with uncertainty. Ten years from now, our economy and the way we do business with other countries in the world may have changed beyond all recognition.

Want to know more ?

Please contact Mac Robertson at Haines Watts on 01708 475 220 or by email at mrobertson@hwca.com