A mandate for change is always more compelling than the desire to maintain the status quo, and this is one of the primary factors that triggered the UK’s historic Brexit vote in June. It also explains why anti-Brexit movements have been more motivated and animated since the result was announced, with a handful of British entrepreneurs having taken to the courts to prevent prime minister Theresa May from arbitarily triggering Article 50 at her own discretion.
While a parliamentary debate and subsequent vote on the terms of Brexit may delay the process, however, it seems unlikely that the government will be able to ignore the will of the electorate or demand a second referendum. So regardless of the impact that Brexit may have on our economy and financial markets, it is important that we begin to consider how Britain can best prosper once it leaves the EU.
Why exports will be a key economic engine post-Brexit
One of the big concerns surrounding the Brexit vote has been the value of the pound, which plummeted to a 31-year low just hours after the referendum result was announced. While it has risen steadily in value since, it remains relatively weak and continues to trade poorly against the Euro and the US Dollar.
Whether or not this is an entirely bad thing is open to debate; however, as there are multiple instances in which a weak pound can have a positive impact on the British economy. It may certainly be true in the event of Brexit, for example, as this will create an opportunity for firms in the UK to access cheaper production costs and home and export their goods for more when selling overseas.
At present, it is clear that the British economy is too reliant on domestic consumer spending, which continues to grow at a disproportionate rate to our nation’s production base and manufacturing output. A weaker pound and the impending spectre of Brexit therefore provides an opportunity to rebalance and restructure the economy, by empowering manufacturers to increase their productivity and achieve a higher profit margin through exports. The same principle can be applied to the financial services sector, although there remains a risk that some leading banks and corporations may decide to relocate if Article 50 is eventually triggered.
What must happen for exports to thrive?
Of course, such a theory is little more than speculation at present, as the UK government remains tight-lipped about it time-frames and objectives relating to Brexit. Much will depend on the terms of the deal that Britain is able to negotiate with its EU counterparts, as well as our nation’s ability to negotiate lucrative trade arrangements with emerging economies and countries in the Commonwealth.
Given the hostile nature of the discussions to date, however, we should expect Brussels to impose a 5% tariff on all UK exports as a cornerstone of any final deal. This will eat into any additional profits, but the government will look to counteract this with similar financial sanctions on goods that are imported from Europe. The EU may also impose quotas that limit the amount of goods and services that can be sold into Europe, but this is an extreme step that may be seen as a step too far by both parties.
Ultimately, any deal with the EU is likely to offer little financial incentives, but the same cannot be said for potential agreements with other economies. This is where the UK can truly establish itself as a profitable, global exporter, as it strikes deals with like-minded countries such as Australia and developing economies in Indonesia and the Middle East. These agreements will benefit from less bureaucracy and lower delivery costs, in addition to higher export prices and a temporarily weak pound.
The last word
For all the fear and hype that surrounds Brexit, the decision of the UK to leave the EU will simply force our economy to adapt and rebalance. This is something that companies and market traders do on daily basis already, which is why service providers like Sucden Financial have emerged as key in the modern world.
Regardless of how negotiations with the EU and new trade partners play out, however, exports will undoubtedly be a key driver of the UK’s economic success going forward. The value of the pound will also play a central role, particularly if this short-term decline can be leveraged by manufacturers to grow their output in time for Brexit.