British Exit and its Impact on Business
British Exit and its Impact on Business
10 November 2016
This past June, Britain held a referendum to decide if they should leave the European Union or to stay, and it came to be known as Brexit, or British Exit. The decision to leave the E.U. was strongly favored at 53.4%, and their reasons for wanting to leave included the notion that the U.K. was “being held back by the E.U…[with] too many rules on business and charged billions of pounds a year in membership fees for little in return” (Hunt and Wheeler). The decision to leave the E.U. has not only caused the United Kingdom economy to take a hit, but it also means that businesses (both in and not in the E.U.) have to be prepared for widespread changes, let alone how they conduct their businesses.
One of the most immediate responses to the U.K.’s decision was the drastic decrease in the value of the pound; to be specific, a “30-year low” (Hunt and Wheeler), about 10% below its value in June that is not expected to change in the near future. There are some speculations that this is just a knee-jerk response to the decision and the long-term effects are still uncertain. However, such a drastic decrease in deals and trades within the E.U. are not going to be without side effects. A lower value of the pound has the potential to decrease the stimulation in the economy, particularly when it comes to spending money and investing in local businesses. A healthy economy thrives on the population spending money, but the citizens of the U.K. might not be inclined to do so when they do not have faith in the value of their money. Hopefully there is a plan for the people of the U.K. to help stimulate the economy again and encourage businesses to spend money.
While the U.K. faces monetary issues within their country, the rest of the E.U. also have to deal with their absence. There are particular concerns about the research-based pharmaceutical industry. Sean Milmo discusses his concerns about Brexit in his article by noting that “a large proportion of Europe’s leading research-based pharmaceutical companies will be based outside the Union” (8). As mentioned earlier, Brexit means the termination of many deals and trades that have been established. Research and development is an extremely expensive cost, and with the decrease in the value of the pound and the newly decided independence of the U.K., companies are starting to feel some concern about the future of their businesses.
While many have their sights set on the long-term effects of Brexit, the initial shock of the vote still has current day implications as well. Businesses have to be prepared to make adjustments to their financial plans now, not just in the future, and not just for the U.K. According to Michael Emerson, both long-term and short-term decisions must be made, with particular regards to “[assessing] the costs of an initial negative shock as trade barriers would be increased, followed by the gradual negotiation of a fresh set of bilateral free trade agreements over a transition period of many years” (47). Of course, doing so is going to be a costly analysis for businesses. Staying in the E.U. would have been more efficient for large businesses, because the E.U. “makes it easier for them to move money, people, and products around the world” (Hunt and Wheeler). With the increased restrictions on business and trade, there has been some discussion of businesses moving their corporations to countries that have remained within the E.U. for the benefit of a more stable economy.
For now, it is difficult to determine if the U.K.’s decision to leave the E.U. was beneficial for not only their own economy, but also the economies of the countries that remain in the E.U. There is a possibility that the U.K. could rejoin the E.U. in the future if they decide that they have made an irreversible mistake; however this would mean that “every member state would have to agree to the U.K. re-joining” (Hunt and Wheeler). After such a strong choice to leave the E.U., they might not be so welcoming if the U.K. does in fact decide to rejoin. Until there is a clear indication of the future, businesses must remain cautious with their cost analysis and keep a watchful eye on the markets. While Brexit will not be finalized for a while, preparations should be made now so that there is a smooth transition in the future.
Emerson, Michael. "The Economics of a Brexit." Inter economics (2016): 46-47. Article.
Milmo, Sean. "Brexit Sparks Uncertainties." Pharmaceutical technology Europe (2016): 8-9. Article.
Wheeler, Brian and Alex Hunt. BBC News. 2 October 2016. Article. 11 October 2016.