EVEN THOUGH IT is impossible for anyone to predict what will be the true implications of Brexit for both the United Kingdom and global economies, there are sufficient issues in the public domain that allow for intelligent projections of what a Brexit world may look like. This week’s contribution looks at those predictions.
Instructively, outgoing British Ambassador to the European Union (EU), Sir Ivan Rogers, has stated that it could take as many as ten years for Britain to conclude a new trade deal with the EU. Foreign as well as local investments during that period are likely to be tepid – wait-and-see in character – until the shape of a new deal with the EU becomes clear.
Notwithstanding the views of the ambassador, the most serious dimension of the Brexit vote has been the creation of widespread uncertainty in global business circles regarding Britain’s economic future. In business, nothing is more corrosive of confidence and hence positive investment decisions than uncertainty.
A study by Britain’s Centre For Economics and Business Research and others estimate that the UK is likely to lose close to US$90 billion in investments as a result of leaving the EU.
There are widespread reports in the British media and in economic trade journals suggesting that many of Britain’s largest companies have suspended their plans for future investments until they can see whether Britain gets access to the EU’s Single Market on favourable terms. Such decisions are already causing a reduction in projected growth rates for the British economy.
That the above is more than idle speculation can be appreciated by noting the International Monetary Fund’s (IMF) latest forecasts for the British economy: It cut its forecast for 2016 from 1.9 per cent to 1.7 per cent.
Bear in mind that the Brexit vote was on June 23; that is, with half the year already completed, and everyone expecting the Remain camp to win, even those in favour of leaving.
The IMF forecast for 2017 has been cut from 2.3 per cent to 1.3 per cent, the largest reduction among all of the economically advanced economies in the world.
For an economy the size of Britain, this is a huge reduction in; inter alia, output, employment, government revenues and foreign exchange earnings.
Perhaps the most serious strategic blow to the British economy will be felt in the financial services sector – the world’s largest.
Under Margaret Thatcher, this sector, in many respects, took over the premier role in the British economy from manufacturing.
Financial services are estimated to have earned close to US$100 billion in 2016, representing nearly 12 per cent of the government’s total tax take, and employing almost one in every 28 members of the entire British workforce.
Further, several leading banks in Britain have already announced the shifting of some of their operations to continental European capitals; mostly Paris, thus far. This trend is expected to accelerate.
Clearly, therefore, while no one is capable of accurately predicting how Brexit will affect Britain and the international economy, it is still possible to take a glance into the future and formulate an image of the post-Brexit world.
Email: bfrancis@uwi.edu.bb
