The United Kingdom is set to exit the European Union on March 29, 2019. After the UK voted to exit, many experts now fear a financial fallout similar to that which happened in 2008. Several investors have since left the sinking British Pound, opting for the safer US dollar. Both European countries, as well as Britain are set to face economic consequences.
The agricultural and automotive industries in the UK have already experienced a downturn. However, banking, food, tourism, and real estate sectors are also already feeling the pain. A report released recently by Moody’s affirms that things aren’t looking promising. Foreign trade is at particular risk. Food, automotive, and the entire UK manufacturing industry as a whole may face vastly reduced volumes and trade barriers. New regulations might also make operations difficult for drug makers, airlines, and telecom companies.
The agricultural industry in Ireland is dependent on mostly UK consumers currently. Different European countries export salad, cheese, and meat products to the United Kingdom. Brits buy four billion meal deal sandwiches (from various supermarkets) that are made from EU supplied food products.
A free trade agreement with the Canary Islands is needed ASAP, according to experts. Barring an agreement, agriculture-related businesses on both sides could easily be destroyed. Expert traders have determined that the Euro and Pound are facing a huge risk, based on established Forex forecasting techniques.
Banks are facing big heat since Brexit vote
The negative impact of Brexit became obvious soon after the votes were tallied. Shares in banks like RBS, Lloyds, Deutsche Bank, and Barclays were the hardest hit last year. Analysts believe that several financial institutions operating out of London would prefer to relocate somewhere else after the exit, which would result in hundreds of job cuts.
Even large American banks and investment firms with a presence in Britain took some heat. Huge multi-multinationals like Invesco (IVZ), Goldman Sachs, Citigroup, and even Morgan Stanley’s shares suffered substantially.
London’s status as a global financial capital is under threat. Reports suggest that even JP Morgan’s CEO has written a letter to their British employees, stating they may change their management structure in order to protect the company. However, he pointed out that the jobs of all the 16,000 employees in Britain will remain safe.
When it comes to the automotive sector, not just car makers, but the stocks of spare parts manufacturers tanked immediately after the Brexit vote. Delphi Automotive, Ford, Borg Warner, and several other shares from the automotive industry went down. So did shares of airline and travel portals operating in the UK.
During 2017 alone, German automakers exported 769,000 cars to various cities in the United Kingdom. Britain is the primary market for Germany’s automotive suppliers as well. These suppliers employ 42,000 people in Deutschland, and any impact on these exports would mean job losses.
Foreign investors who considered London as a great investment destination to buy real estate are finding it less attractive these days. House builders and real estate companies have proven to be the biggest losers, due to a decline in consumer confidence.
Britain needs to establish new trade relationships to reduce the feeling of uncertainty spreading amongst business owners. Even the immigration status of Europeans working in the UK would be included in the collapse after Brexit. Regulations would need to be put in place in order to protect Britain’s valuable immigrant workforce.
Britons love traveling abroad, mainly in European countries. They would probably continue doing the same even after Brexit. However, if the European Commission decides to stop allowing British tourists to enter EU destinations without a valid visa, the tourism industry in the European Union could also feel the impact.
Big businesses already prepared for the exit…
A study conducted by law firm Clifford Chance and business consultant Oliver Wyman has recently highlighted that the plastics, chemicals, food and beverages, agriculture, automotive, and financial service sector will be hurt by Brexit. Tariffs and other taxes levied on British exporters is estimated to rise to £27bn after the exit. Exporters in EU27 nations is estimated to be around £31bn per year according to the estimates in the study.
Big exporters from both sides have already started assessing the impact of Brexit on their supply chain, and are also looking to stockpile supplies while alternatives are being explored. However, small companies who are part of the supply chain do not seem to be prepared, according to Oliver Wyman.
Big companies are working towards creating a cushion for themselves by cleverly estimating the consequences of interruptions in the supply chain. On the other hand, the financial position of the small firms is likely limiting their ability to do the same.
According to the Wyman survey, around 66 percent of the companies from Germany and the UK trade within the EU exclusively. Post-Brexit, the business model of such companies could be completely destroyed. Everyone seems to be aware of the turbulence that lies ahead. However, there really is no idea what the true impact will be until it happens. Many companies are just buckling down for now and waiting to see what the fallout will be, according to Clifford Chance’s partner Jessica Gladstone.
Tariffs and taxes are only a couple of major concerns. The topic of duties and other custom’s related problems will add even more fuel to the financial fire. The study highlighted that a well-planned customs agreement between the EU27 and the UK would reduce the impact of Brexit. If both agree on custom’s duties that are similar to what exists currently, the UK’s cost for the exit would be lowered down to £17bn, and for the EU27, it can be reduced to £14bn.
Overall, the study stresses on the need for a well-planned exit to mitigate its impact on the UK and the remaining European Union.