Brexit – what next for the British economy?

June 27, 2016

The British public have spoken and made clear that they see the UK’s interests best-served by leaving the European Union.

Over the coming months and years, there will be significant changes to the political landscape. In the short term, the government is likely to set up a task force in order to negotiate Britain’s exit from the EU.

To counteract the immediate negative shock to the economy, it is likely that a number of policy measures will be announced. The government could introduce some pro-business measures in an emergency budget. The medium-term impact on the economy is harder to assess and will depend largely on the pace and success of the government’s negotiations with the EU and on future access to the single market.

The EU referendum result could result in higher funding costs for UK companies as funders re-evaluate credit risk and may seek to pass on their increased costs of capital. Companies should identify the key actions such as deferring unnecessary spending, maximising sources of liquidity and managing working capital which they can call upon to preserve value during this potentially turbulent period.

In the immediate aftermath of the result, employers will need to concentrate on reviewing the implications for their workforce and then communicating with their employees. Employers are used to EU employees currently having the right to live and work across the EU without restrictions and applying EU regulations on social security coverage and benefits to EU mobile workers. Employers need to be prepared that these rules may not be in place after leaving the EU and be ready to address specific employee queries on the position throughout the exit negotiations as well as assess the cost implications for the business

The UK leaving the EU could potentially disrupt trade relationships with our most important and nearest trading partners and creating uncertainty for financial markets and business in general. It will be very important for the government to act quickly to resolve the inevitable uncertainty. The EU is a vital market for exporters so it will be important that we secure access to that market in any future settlement with the EU. Most businesses in the UK want us to keep a close and positive relationship with the EU even if we are not a full member. This could be done by remaining a member of the European Economic Area, or by securing our own specific trade relationship like Switzerland

It is important to keep things in perspective, but in the short-term, we need to brace ourselves for more volatility. The final polls last week were pointing to Remain and this was the general expectation of financial markets. This potential shock has hit the pound and stock markets and could push up the cost of borrowing because of the additional political risk.

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