10th November 2016
Lester Aldridge LLP
In this article, MSI's south coast UK law member Lester Aldridge takes a look at the immediate effects of the UK’s historic vote to leave the European Union.
The main effect of the UK’s historic vote to leave the European Union was to create a huge wave of uncertainty for businesses across the country. Employers can no longer plan their recruitment strategy to include free movement of workers throughout the EU. No longer can exporters rely on free movement of goods to other European countries. In 2015, 44% of the UK’s exports, valued at £223.3bn, are to the EU whilst 53% of imports valued at £291.1bn are from the EU – imagine the effect of tariffs being imposed on all that trade!
What about Brexit itself? A special government department is being set up to manage Brexit. It seems that the notorious article 50 two year exit process will not be triggered until that department is fully staffed. But how will the EU treat the UK as it seeks to leave the union? One view is that the remaining member states will really tighten the screw in negotiations to set an example for any countries contemplating having their own referendum. We already know that several nations have said that they would veto any deal with the UK that restricts free movement of labour, which we know is an objective of many Brexiteers.
Admittedly, there have been no disasters since the result. The FTSE is coping (although, as it is dominated by companies reporting in US dollars, the relative weakness of the pound means that is not surprising), manufacturing is strong and unemployment is continuing to fall. However, interest rates were cut soon after so it’s not easy to tell how different things would have been if that had not happened.
However, the uncertainty creates significant risks for the economy going forward. How will the UK’s legal system, which has been intertwined with the European legal system for many decades, cope? Will intra – European trade be sustained at the levels quoted above? Will there be a sudden increase in EU citizens wanting to secure residency in the UK before the metaphorical drawbridge is pulled up? Will there be difficulty for UK business recruiting for those positions which are currently filled by EU citizens?
There are also some opportunities. For short-termists, now could be a great time to invest in the UK whilst the pound is relatively cheap. But beware – the markets are volatile! It may become easier for non-EU skilled workers to come to the UK. At the moment, there is no flexibility to favour migrants from outside the EU and some say that the current freedom of movement in the EU means that there are fewer spaces for non-EU migrants.
In terms of trade, we know Australia is keen to do a deal with the UK. If trade tariffs were dropped by the UK for non-EU goods, then Australian wine for example, of which the UK is a prime importer, could get cheaper and demand increase.
Of course, this is all speculation and until the negotiations start, there will be many more questions than answers!
Lester Aldridge is a full service law firm, advising commercial organisations and private individuals on a regional, national and international scale, from offices in Southampton and Bournemouth.
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