As we move closer to the 2017 referendum that might redefine UK’s relationship with her EU neighbors, many businesses and investors are very uptight. They don’t know which way the vote will go on Brexit (Britain’s exit from the European Union) and what the implications will be for them. While the outcome is still quite uncertain, it is wise to evaluate the possible repercussions. Here are five positive and five negative ways in which Brexit might impact businesses in the UK.
- A Larger World Market for the UK
Staying in the EU is perceived to be denying Britain a chance to access the world market. There are some countries, for instance, that do not feel comfortable trading with the EU due to its policies. Some of the standards that EU requires for goods to be exported are also deemed unnecessary, and yet meeting them leads to higher costs of production.
By leaving the union, the British government will be free to negotiate its own trade terms. It will be able to set its own prices and important agreements for exports rather than letting another body make such decisions.
- More Government Support for UK Businesses
The EU has been criticized for promoting some sectors of the economy while ignoring others. A good case in point is the Common Agricultural Policy, which continuously supports farmers, allowing them to sell products at high prices when it is clear that there is a market glut of agricultural products.
The UK loses as much as £10bn per year in support of the Common Agricultural Policy. Exiting the EU would allow the British government to redefine its market environment and probably accord businesses the support they need, while also leaving them to match their production and pricing with the market needs.
- Less Competition
Many businesses in the UK have been hurt by the low prices of goods from other countries, which render domestic production unsustainable at the current market prices. The recent events in the steel industry provide the most suitable example here. Allowing the UK to negotiate its own deals is probably the best way to salvage this mess.
- Lower Taxes
There are speculations that British taxes may be greatly reduced if Brexit goes through. The UK contributes large sums of money to the EU annually. If this could be diverted into the internal economy, it would help to cut down the costs that businesses and their customers currently bear through the high VAT and other taxes.
- More Investment Opportunities for UK Residents
Being a major trading center in the EU, UK has been a difficult place for small and medium scale businesses; bigger and more influential European companies deny them chances to invest. Not only have rents for premises risen but small businesses have also had problems with securing supplies. The exit of some businesses from the arena will provide UK residents with more opportunities to invest.
- Weaker Contacts with Foreign Suppliers
Trade between the UK and EU will definitely not come to a standstill. However, there are bound to be some strains in relationships that might see the two regions place bottlenecks on each other’s goods. Businesses that have suppliers and associates from outside Britain might have to incur more costs if they want to stay in contact with them.
- Stricter Lending Criteria, Higher Rates
Immediately after an exit, the panic that might set in could discourage more investments. While many EU banks will continue operating branches in the UK, businesses that want loans will have to meet tighter lending criteria. To raise the increased operational working capital, businesses will also have to pay higher interest rates when they take loans from external financial institutions.
- More Competition
There might be a noticeable increase in internal market competition. British businesses are among the majority in the EU, and for many years, they have enjoyed the ease of access to markets in the EU. With ties cut, more of these businesses might shift to marketing internally.
- Reduced Negotiating Power
Negotiating as a block is better than doing it as a single country. UK businesses might need to brace themselves for unfavorable trade deals, which might force them to export commodities at lower prices than they used to while under the EU.
- Low Foreign Policy Influence
The UK has been instrumental in directing foreign policies, some of which have helped its businesses to grow. By leaving the EU, it will no longer have a say. Some of the decisions made by the EU in its absence may bring negative impacts on the UK economy.
As the debate on Brexit heats up, it is evident that Britain is experiencing the worst current account deficit since the time of George III when records started being collected by the Bank of England in 1772. The direction Britain takes regarding Brexit may change the situation or may not; but for now, most investors find the present situation unsettling and nerve racking and this uncertainty will likely lead to growing volatility as the referendum date approaches.