The June 2016 EU referendum & Article 50, the vote by the British public to leave the European Union after more than 40 years of membership, was a momentous event. This is likely to have a number of effects on UK corporates for many years to come.
What we know so far
Article 50 of the Lisbon Treaty, which starts two years of formal negotiations, is likely to be triggered before the end of March 2017, according to Prime Minister Theresa May. However, on Thursday 3 November the High Court of England and Wales ruled that Article 50 cannot be triggered without approval from Parliament. This decision was then upheld by the Supreme Court of the United Kingdom on 24 January.
Current expectation is that Parliament will approve the triggering of Article 50, meaning it is likely that the formal process of leaving the EU will begin at some point in late March or early April.
Gross Domestic Product grew by 0.6% in the three months to September. The market expected the UK economy to grow around 2% overall in 2016; however, Barclays believes this will reduce in 2017 and we expect growth of 1.1% for the year.
Barclays believes that the immediate negative impact of the Brexit vote has been reduced by the rapid appointment of Theresa May, the record low interest rates and the BoE’s ramped up asset purchase facility. We also believe the Bank could even cut rates a further 20 basis points; however, this is likely to be the lower bound with BoE Governor Mark Carney averse to negative interest rates.
Surveys of business expectations from the Confederation of British Industry (CBI) and the Purchasing Managers’ Index (PMI) both declined to multi-year lows following the Brexit vote, but more recently have bounced back.
The IMF also recently increased its growth forecast for the UK in 2017 to 1.5% from the previous prediction of 1.1%.
In the months following the referendum, Britain’s trade deficit widened after imports hit what were then estimated to be new heights in value for 2016.
This deficit has narrowed more recently, although continues to fluctuate significantly. A weaker pound may make UK exports more attractive to overseas buyers; however, this depreciation in sterling may also cause inflationary pressures in the UK as it will increase the costs of imports and raw materials. Another benefit for some exporters was pointed out at the Global Expansion Summit in London (October 2016). Some EU subsidies and protections are contrary to the ambitions of UK businesses. For example, the exit from the EU may remove some of the EU sugar market intervention for the UK, making UK sugar products more competitive. Cases like this are worth considering – certain consequences of leaving the EU may benefit your business.
Barclays have put together an updated Brexit Brochure which rounds up some of the issues and potential impacts and looks at solutions that may support your business in a new trading landscape.
For more information speak to your Barclays Relationship Director.