The impact of Brexit on British businesses

                                     

On June 23rd, the British people voted to leave the European Union. 52% of voters chose to Leave the European Union when asked: Should the United Kingdom remain a member of the European Union or leave the European Union?  The United Kingdom is now negotiating its exit from the European Union after triggering article 50 that states that Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements.  Exiting the EU is not just withdrawing from the single market, it also means that Britain will be placed in a situation of isolation with regards to its neighbours.  It will also risk complicating the lives of tourists and students going to and from the UK.  

Theresa May has been negotiating with Michel Barnier and three possibilities are on the table regarding Brexit.  The UK may manage to negotiate a deal with the EU and Brexit could happen relatively seamlessly, or the UK could leave the EU with no deal and have to cut ties with Brussels in what is being referred to as a cliff-edge Brexit or, in a very unlikely turn of events, the UK could go back on its decision to leave and stay in the EU.  If the first two possibilities seem the most likely, they also seem to be the most difficult for businesses in Britain. 

The EU makes it easier for business to operate in European countries by allowing the free circulation of goods for example, thanks to the customs union.  Exiting the EU and therefore the customs union would increase the import and export cost of raw materials.  Therefore the cost of production would rise, making companies less competitive.  Imports from the EU have already been affected due to the 14.4% depreciation of the pound.  In addition, just after the vote for Brexit, the pound was at its lowest point compared to the dollar in 31 years.  

The forecasts are of course complicated to calculate but they do not make for good reading.  British exports will take a hit with losses that could amount to £4.5 billion per year if the UK leaves the EU without signing a deal on trade.  The hike in import costs will also hinder British businesses’ competitiveness with regard to their European competitors. In view of this, British companies could decrease prices but this will reduce profits.  According to Oxford Economics the cost of exiting the EU could be anywhere from 1.5 to 3.9% of GDP in the next fifteen years and they also predict a drop of 8.8% in British exports.

Britain was given two years from the day of voting for independence to actually leaving to negotiate a trade deal with the EU.  Looking at events over the past few weeks, this deal seems less and less likely to be approved by parliament.  The loss of leaving the single market could be approximately £75 billion.  Which makes the £9 billion the UK pays to the EU every year insignificant in comparison.  

Another factor caused by Brexit is the number of people in the UK searching for jobs abroad and wanting to leave Britain. Meanwhile, in the UK, 500,000 jobs could be lost and the unemployment rate could rise by 6.5%.  This could also impact the 2.1 million Europeans already working in the UK who generally have skilled jobs as, if they leave the UK, Britain will face a shortage of skilled workers.  

Brexit has been branded a “shambles” by the UK boss of ThyssenKrupp Terry Sargeant.  He claims that leaving the EU without a deal will leave many Brits jobless and would disrupt international trade in the UK.  He also explains that this will make Britain far less attractive for business for companies looking to expand abroad.  Many other companies have reacted to Brexit, with companies like Vodafone saying they could move their HQ out of the UK and Virgin Group could have to cut 3,000 jobs.  

Theresa May and the Conservative party need to rethink their stance on Brexit and not make decisions purely to stop the party from imploding. They could go so far as to maybe consider a second referendum as the impact, not only on business but on life in general in the UK, could be traumatic.  However, the chances of a second referendum are slim due to a rabidly pro-Brexit press and the fear of the UK’s elected politicians of seeming to ignore what they refer to as “the will of the people” as demonstrated by the 2016 vote.  

Harry B