On Thursday 23 June, Britain voted out of the European Union winning by 52% to 48%. The referendum turnout was 71.8% with more than 30million people voting and it became the highest voter turnout in a UK-wide vote since the 1992 general election. The results were shocking leaving the whole world shaken up with most people not even sure what it meant but still shaken. But since it already happened, it’s time we start dwelling on what next and what it means to the global business. The future is blurred with Davis Cameron stepping down as the Prime Minister; the ball will be in his successor’s court to tackle all the Brexit quagmire and help calm the citizens’ uncertainty.
The one thing that we are quite sure about is that business will not be as usual quite literally since Britain plays such a great role in the world economies. It’s beyond doubt entrepreneurs will feel the impact regardless of the political side that they are on. It doesn’t stop there since the UK is technically still in the EU until it ceases being a member and the process might take some time. The coming few years before everything settles are going to be hard on entrepreneurs marred with uncertainty, delayed deals or even slow-down of businesses. The UK’s exit from its leading trade partner will beyond doubt spell change for entrepreneurs and the following are the things that you should worry about.
1.The sinking of the sterling pound
The most helpful tool for economic ball-gazers is the value of the sterling. Most of them predict that the value of the pound will significantly drop even up to 30%. Shortly after it emerged that Britain was leaving the EU, it dropped by 10% to the lowest it has ever been since 1985. The value of the pound has significantly decreased especially in the Asian countries up to almost 9% and 3% against the Japanese Yen. This is likely to mean that:
The imports will become more expensive resulting into hiked prices on the High Streets which will be such a blow for shoppers. In 2015, the UK imported more than $623 billion of services and goods which mainly came from the United States, Germany, France, the Netherlands and China. The most affected will be clothing and electronics which are majorly imported from overseas. The effect might not be felt immediately but later in the year. Also, supermarket prices are most likely to rise and motorists are also going to feel the pinch since the price of petrol and diesel will rise more quickly.
Foreign holidays will be more expensive since your pounds will now buy you fewer dollars or Euros. The cost of accommodation will, therefore, be higher compared to when the pound was still highly valued. On the other hand, Britain’s domestic tourism industry will possibly experience a boost from the weaker pound with most people preferring to enjoy the holidays in the UK since it will be cheaper.
Most British expats have Ireland, France, and Spain as their destination of choice. It will be such a blow especially for those receiving the salaries or pensions in Sterling hence their purchasing power will drop in their resident countries.
The exporters may be winning on this since their products will be cheaper for the foreign market hence highly competitive, something that importers might not have the opportunity of enjoying since buying from outside will be more expensive.
The falling of the sterling pound might be beneficial too since the exports will be much cheaper and definitely get a boost. At the moment, the UK companies are enjoying the opportunity of trading with EU on quota free and tariff-free basis but after Brexit, that might not be the case. On the other hand, India might have easier trade with Britain but quite difficult with the rest of the European Union. India has the UK as its central hub for business to reach out to the rest of the world with almost 33% of the investments being in IT and telecom sectors. But with Brexit, India will have to re-strategize, and if the need arises, India will have to divert its investment to EU with a new set of regulations and also differential taxes.
3.Manufacturing and automobile Industries
Rolls-Royce, for instance, was quite skeptical about the UK leaving the EU and warned its employers that they would risk so much money planned for the testing plant and that will place their main rival the US at a competitive advantage. This is mostly because motor industries are interconnected throughout Europe and with Brexit, it will be a period of uncertainty, something most of these companies cannot afford.
Toyota, Vauxhall and BMW did back remaining in the EU, and so did Audi, Land Rover maker Tata and Nissan most of which worried Brexit would jeopardize their survival. The UK Automotive industry had a clear message that it was vital being in Europe since it was useful for securing jobs, growth, and investment. For a decade now, the UK Automotive has been thriving recording the highest manufacturing levels, new registrations, and car exports.
Tata Motors, the company that produces Jaguar Land Rover, will, for instance, lose about 1 billion pounds due to the split by the end of the decade. It is widely known that most of the cars produced in the UK are imported but with new tariffs possibly ensuing after the exit, these cars made in England would become less competitive.
4.Investment and savings
For savers, any rise in interest rates will be good news. Unfortunately, during the Brexit campaign, the Treasury argued that the UK shares would be less attractive to foreign investors and completely decline in value. Although still uncertain, in the long-term, the big exporters might benefit from the weakening pound making the value of their shares rise. The importers, on the other hand, might feel the shrinking of their profits. This analysis is based on the fact that shares rise with the company’s profits.
5.The Impact on the Global Economy
All this trickles down to how the global economic plans will be shaken. Britain accounts for about 18% of the European Union GDP. With Brexit, the EU block could lose as much as 1/6 of its cumulative economic output. Brexit is a real test, and the world should use it as a case study and efficiently deal with the economic backlash.
Even with all the uncertainty, one thing that is very clear is both local and global businesses will face increased customs and different regulations. Businesspeople and the general public as a whole will no longer have all the freedom to travel and import into the UK through Europe. Maybe, time is ripe for any entrepreneur to start brainstorming on the strategies to counter the challenge that is underway and try look at the brighter side of things. Perhaps it’s too early to tell what impact Brexit will have on business. It’s likely going to take Britain several years to legally untangle itself from its connection with the European Union and only time will tell whether independence is bane or boon.