Following the surprise Leave vote, Britain’s economy was plunged into a dizzying unknown. Such unknown and uncertainty also hit the European economy, and the global economy braced itself for a hit to growth and unemployment.
As the result was announced, financial markets illustrated the turbulence and volatility that could lie ahead for the world’s fifth biggest economy. The pound collapsed spectacularly to its lowest level against the dollar since 1985. As the UK financial leaders sought to reassure nervous markets, the pound did start slowly to bounce back, a trend which continued after the weekend.
The UK must now face up to drastic economic (and political) change, as International Monetary Fund head Christine Lagarde called upon both Britain and Europe to work together to ensure that any withdrawal will occur smoothly. Before any negotiations even begin, a financial storm has already started across global trading floors.
Although intentionally no negotiations will start immediately, allowing for a ‘breathing space’ for both economy and the political arena, the very many political uncertainties linked to any exit process are also set to impact Britain’s economy (and indeed will be felt in Europe) in the medium to long-term, according to experts.
Prior to the vote, and his resignation as Prime Minister, David Cameron had warned that it could take more than a decade to withdraw from the trading bloc, and to negotiate new international trade deals. Further to that, the World Trade Organisation has predicted and warned that British exporters risk an extra £5.6bn ($8.2bn, €7.2bn) in extra annual customs duties after leaving the bloc.
With all sides stressing it is currently ”business as usual”, it is unlikely that these duties will be implemented any time soon. Both the British and European banking and car manufacturing sectors (noteably the car manufacturing industry in Germany) have made it clear that many jobs would have to be relocated abroad as a result of the vote. US investment banking giant JPMorgan Chase on Friday was the first to warn that it could relocate British jobs abroad in reaction to the vote. JPMorgan currently employs 16,000 people in Britain; Chairman & Chief Executive Jamie Dimon has previously said that up to 4,000 jobs could move out of Britain.
The financial sector has long seen the City of London as a “gateway” into Europe. Whilst the Out vote will not in any way diminish the status of London as a global financial hub, many thousands of banks and financial institutions could restructure their operations, and move jobs and offices to Europe, to enable them to trade within the EU. Prior to the vote, finance lobbyists TheCityUK predicted that following an EU exit, London could shed up to 100,000 financial sector jobs. According to Scott Corfe, a Director at the Centre for Economics and Business Research, there are “a number of large companies that say they are using the UK as a gateway to Europe and a number of companies have said that they would relocate their headquarters in the event of a Brexit — moving out of London to other financial centres in Europe.”
Immigration was a key (and heated) area of debate and discussion on both sides during the campaigning. Any Brexit would also change Britain’s immigration landscape if fewer people from EU member states came to Britain to work — this is another factor which risks impacting on future UK economic growth.
Despite the predictions, there is also a growing feeling of optimism. Efforts from the Treasury and the Bank of England have overall been successful in calming volatile markets reacting initially to the vote. Further, many financial markets have already started to see a slow return, although not to previous levels. The delay in any Brexit is also seen as helpful, as it allows for industries and individual companies to prepare for any Brexit.
Either way, whether pursuing optimism or negativity, the outlook remains very uncertain for the UK economy – and for the European economy. Additionally, the uncertainty is not limited to economics, as the political landscape is also been redrawn across the Continent in response to the vote.