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UK Votes To Leave EU: Strategy Analytics' View

by User Not Found | Jun 24, 2016

Strategy Analytics believes that the UK’s decision to leave the EU is likely to lead to an extended period of business and economic uncertainty in the UK itself. Financial markets have already responded with downgrades in UK stocks, currency and (potentially) credit ratings, but it remains to be seen whether these represent a new plateau or whether falls will continue or indeed be reversed over the coming months. The Bank of England has stated that it is prepared to “do what it takes” to maintain stability and this will have given some reassurance.

Businesses with interests in the UK should keep close tabs on exit negotiations, which are likely to be politically fraught, complex and time-consuming. The UK political landscape is now extremely volatile and while the fundamentals of the UK economy remain sound (stable prices, low unemployment, falling deficit), and while most politicians will pay lip-service to maintaining a stable economy and business environment, their attention will inevitably be focused elsewhere.

While the UK represents a small share of the global economy, the vote could have ripple effects internationally in ways which cannot be predicted. The UK will continue to trade within current frameworks until Brexit is completed, but the nature of its trading relationships with the rest of the world post-Brexit will not become clear for many months, if not years, and a number of scenarios could be imagined. The EU itself is likely to come under increased pressure to reform its structure and procedures, although it will be extremely resistant to such change, and we expect to see populist calls for in/out votes in other EU member states over the next year or so.

The Brexit vote represents another sign that even the world’s largest and most stable societies are not immune to upheaval. This year’s US presidential election could be the next venue for shocks and surprises, and French and German elections are also scheduled for the next couple of years. Amidst the turmoil business activity will continue and opportunities will inevitably emerge, but the general rule should be to consider investment decisions with even more care than usual and plan for uncertainty as far as possible.

David Mercer
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