As something of a political junkie, I sat in a hotel room in Newcastle and watched as the initial results of the UK referendum on continued membership of the EU were announced, and it is safe to say that I was pretty shocked at what was transpiring in front of my eyes. Whilst the Gibraltar result was first known and comprehensively in favour of Remain, it was never going to be a good indicator of the likely overall result.
Two real bellwether constituencies were locked in something of a local rivalry to see who could get the votes counted and result announced the quickest – Sunderland or Newcastle. The sense of the commentators was that whilst a close outcome in Sunderland would probably indicate a vote to remain; the opposite was true of the Newcastle result. As the tension mounted and the light-hearted local rivalry was discussed by the political panel on the TV, it became clear that Newcastle would get a result out first – 65-35 in favour of Remain (if I remember correctly). This result was indicative of perhaps a shift to the leave camp but remained inconclusive. I retired to bed assuming that whilst it was closer than expected that the Remain camp would just scrape through with a narrow margin, after all, the bookies rarely get it wrong and they had predicted a Remain result!
Fast forward a couple of hours and as day broke it became apparent that the unlikely had happened and the UK had indeed voted to Leave the EU. This was not the result that I personally expected nor had many others in fact in my immediate circle either. However, within a couple of days of the result being announced the real truth became apparent
- Few people had anticipated this outcome and as a result,
- Even fewer had any sense of what the implications of the result might likely be (beyond the resignation of David Cameron of course!)
So what now?
Well, the answer is that we still don’t know with any certainty; from both an economic and political perspective we are in unchartered waters.
One might be inclined to think that the response of the EU might be somewhat heavy handed in terms of negotiating an exit deal for the UK as a means of protecting the benefits of membership of the EU bloc (not to mention to serve as a deterrent to other countries with secessionist groupings). Indeed there have been calls from within the EU to have the UK trigger the secession process sooner rather than later.
One might also be inclined to think that the result might also trigger some political instability within the UK, but the timing over the summer political recess seems to have taken some of the impetus out of this process. However, given the fractious nature of the result in terms of geographical split, in terms of preference, and a more Euro sceptic look to the UK government this may again flare up in the coming months.
There are lots of other potential impacts in addition to the above, such as the Common Travel Area between Ireland and the UK, EU migrants’ right to work in the UK and many other issues, however, the reality at this point, in relation to all of the above, is the following, the only certainty is that we are in for a period of uncertainty whilst the details around the new status quo are thrashed out….and the markets do not like uncertainty.
But what are the immediate impacts of this uncertainty?
Firstly, the lack of certainty around the future prospects for the UK economy outside of the EU trading bloc has led to an ongoing decline in the value of the pound Sterling against currencies such as the Euro and the US Dollar.
Secondly, it would appear that uncertainty has driven a level of reduction in Economic output in the UK. This has been reflected in a number of the key economic surveys in recent weeks, and is sufficiently of concern to the Bank of England for it to act in the last couple of days to slash interest rates to 0.25% to try to drive spending in the economy to boost activity (which also has the impact of weakening the value of Sterling as it becomes less attractive in terms of its immediate value payback for investors.)
A strong Euro against Sterling is not a good thing for Irish exporters to the UK or indeed any Irish business with links into the UK market. Higher costs mean that Irish exports to the UK become less competitive versus UK competitors meaning exporters will face either decreasing demand or tighter margins.
Irish exposure to the UK economy is (whilst not as large as it was in previous decades) still extremely significant. There is over a billion euro in trade between the UK and Ireland every week, Dublin to London is the second busiest international air traffic route in the world, and many businesses trade across the now invisible border between Northern Ireland and the Republic every day as if it was never there. The UK is our closest neighbour, we share a language, cultural reference points, and citizens move freely between the entities due to a common travel area that pre-dates the EU.
However, how all of these elements will be managed in the future remain uncertain, and from a business perspective the sensible (or at least most common) approach in uncertain times is wait and see what transpires, meaning delaying investment decisions and reduced volumes of business to minimise potential exposure risks.
The often used phrase
“it’s the not knowing that kills you”
seems apt in this case for Irish businesses.
What we are certain of is the following
- The uncertainty from a UK perspective as to what happen next with their relationship with the EU is impacting confidence in Sterling which is making our exports to the UK (our biggest export market) more expensive.
- The uncertainty regarding the future ability to exercise the EU’s 4 Freedoms in dealing with the UK is hampering informed decision making in every facet of dealing with that market into the future for Irish businesses
- The cumulative effect of the above is damaging economic confidence leading to reductions in the forecast economic growth rates in the Irish economy (which has the potential to negatively influence inward investment)
Perhaps the least-worst outcome for Irish business right now would be for someone in the UK to “Rip off the Band-Aid” in triggering Article 50 of the Lisbon Treaty and the kick-off of the exit negotiations between the UK & the EU with a definitive timeline of 2 years in order to provide answers & certainty so we can finally understand if the threat of #BREXIT is indeed worse than the reality.