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‘Pound collapses’, ‘Stock market plummets’, ‘Uncertainty rises’, ‘PM resigns’, ‘What’s next for the UK?’. These were some of the major headlines on the morning Britain voted to leave the European Union, as people came to terms with accepting a new regime and face for Britain almost overnight.
Understandably, this vote had an immediate impact on the UK economy and the following business sectors have became apprehensive of their growth and position in the UK.
Retail, Trade & Travel
For starters, the political uncertainty created by Brexit has reduced consumer confidence. A study by (Chan, 2016) of The Telegraph in the early days of Brexit suggested that consumers were pessimistic about their finances and the economic outlook. The UK economy suffered the biggest drop in consumer confidence in 26 years, which subsequently lead to less spending and velocity of money in the economy. As a result, retail businesses and travel companies are likely to see a reduction in their turnover, frequency and may lead to a cut in jobs. Airlines would need to charge higher fares and new ‘air service agreements’ would need to be discussed in due course.
In addition, businesses that regularly trade with the EU will experience a lot of uncertainty and volatility. Importers will face rise in their cost due to the depreciated sterling, however exporters will benefit due to cheaper goods for EU states. Nonetheless, once Brexit is implemented, it would most likely lead to the abolishment of certain agreements of the current EU-UK trade deal and increase trading restrictions or higher tariffs, thereby affecting the UK open market.
It is understood that businesses would only see the effects of Brexit in January as; most of them are believed to have hedged their purchases, pre-Brexit.
Financial services & Multinationals
The biggest worry of Brexit has been looming on the minds of financial corporation heads and MNC’s, particularly car industries, which have taken a very defensive stance, claiming that Brexit will lead them to review their investment and production decisions. It is also a matter of concern as to how ‘passporting’ for financial corporations will occur between EU member states and the UK for the easy movement of financial products and services.
Furthermore, companies such as Toyota, JP Morgan, Rolls Royce and Goldman Sachs have stated that they will cut thousands of jobs and move operations while HSBC is currently contemplating moving their HQ out of London, with other major institutions also rethink their stance in the UK, thereby increasing the risk of London losing its appeal as a financial and commercial hub.
Property & Housing
A glimmer of hope could be seen in the housing/ real estate market, with the fall in sterling leading to greater demand for property from wealthy foreign buyers. Another factor could be that due to the Bank of England’s reduction in interest rate to 0.25%, it would be easier for potential property buyers to obtain a mortgage at a lower rate, which would increase the demand for housing in the UK and lead to more homeowners, which is essentially good for the economy.
However, those looking to sell off their property may find that Brexit would have reduced the value of their property almost overnight, with estimates suggesting house prices would fall by 10-15% in the coming years.
Funding for Universities & Agriculture
Britain is one of the prime recipients of funding for science and other research. According to The Guardian, EU research funding to the UK has exceeded £8bn. This impacts the quality of research conducted by universities and professional scholars and researchers would likely move to the EU to get better access to research funding and facilities. Furthermore, it is believed that university fees will rise in the near future, abolishing the £9000 cap.
In addition, subsidies on agriculture would also be reduced, which would increase burden on farmers and the government to sufficiently provide for them. This would also lead to a rise in prices of staple food.
There is a lot of uncertainty as to how Brexit will affect UK businesses and how economic policies will be reformed to cushion the negative impacts of it. For now it remains to be seen whether Article 50 will be implemented and if so, what arrangements will inevitably be agreed between the EU and the UK.