Fears that Brexit would hobble British businesses and consumers already appear to be unfounded, a year from the historic divorce.
The UK’s decision to leave the European Union has certainly begun reshaping the economy and its initial hit on the pound was a shock to some sectors. But the overall picture halfway through the severance negotiations between British ministers and Brussels is one of cautious optimism.
Why is Brexit good for UK?
The economy has grown since the June 2016 referendum that decided the UK’s fate in Europe, and forecasts are that it will continue to expand. Foreign direct investment has surged, with the latest figures from the OECD showing inflows reached the most since the referendum in 3Q last year. And with inflation easing as the pound regains much of the ground it lost in the immediate aftermath of the referendum, many businesses have begun discounting Brexit as a major risk factor.
“If you examine the market empirically and ask what’s happened since we fired that starting pistol, the truth is that most economic data has been broadly positive,” said Guy Shone, London-based CEO at economic insights provider Explain The Market. “If you talk to the majority of directors for SMEs, Brexit features mid-table in their concerns. Primary concerns are cybersecurity, hiring the right people… the sort of things that would affect their business at any time.”
The separation talks are yet to yield any clear indication on what a post-Brexit landscape will look like. Analysts don’t expect to see any firm agreements until the last minute, this time next year, when the pressure to make deals is greatest.
Economic benefits of Brexit
For the Leave Means Leave group, a campaign supported by members of all the major political parties, the hope is for a “hard Brexit” — one in which the UK pulls out of all EU institutions. That includes the single market, which enables free trade throughout the bloc, and a customs union, that ties the nation to the EU’s open-borders policy.
Leave Means Leave is confident the talks will yield their key hopes;
- Lower trade costs, enabling Westminster to negotiate its own free-trade deals;
- An end to the quota system imposed on British farmers and fishing industries;
- Increased worker productivity and higher wages resulting from a slowing of the influx of unskilled migrant workers and a redrawing of business regulations to suit only UK employees, businesses and consumers;
- Better use of the GBP350 million that the UK pays into EU funds each week.
The upshot will be a 7% boost to GDP, amounting to GBP350bn a year for the UK economy, it estimates.
“It might be traumatic for a while but people will find new ways of doing things, and we’re seeing that happen already,” said David Johnson, founding director at Halo Financial, a London-based digital payments and cash transfer company. “On the basis of the EU being 13% of the world’s economy and the other 87% being out there, you would have thought new ways of doing things would involve great opportunities elsewhere.”
Who gains from Brexit?
The prospects of a new dawn has already changed the face of the UK economy.
The Brexit Tracker has been monitoring production costs to each economic sector since the referendum. The gauge of production costs and productivity shows industries requiring skilled workers have fared well so far, having escaped the impact of a slowdown in net migration since the referendum. Also, it suggests, export-linked sectors have benefited from a decline in the pound that saw it depreciate to the weakest in a generation.
The best-performing industries in the past 22 months include metal-product manufacturers, food producers and miners, whose goods now cost less overseas and who face less competition as pricier imports decline.
Shipbuilding and retail have been the worst hit, as has financial services, buffeted by concerns that a hard Brexit will rob UK companies of passporting rights to trade in Europe.
Preparation is key
Surprisingly, hotels and restaurants have fared badly, defying predictions of a boost from an influx of overseas tourists taking advantage of the favourable foreign exchange rate. Brexit Tracker creator Ben Martin said this shows it’s too early to predict the UK’s future outside the EU.
Ben Martin, who devised the Brexit Tracker believes great opportunities await businesses after Brexit, but they have to prepare for it. The companies that have performed best since the decision to leave the EU are those that have put the time and effort in to meet the new demands.
“Brexit is having an impact already — businesses shouldn’t be sitting on their hands, it’s already impacting their business chain,” Martin said. “The economic picture of the UK has fundamentally changed already.”