The UK is leaving the EU – So now is not the time to bury your head in the sand.
HOW DO THINGS STAND AT PRESENT?
The UK economy appears to have weathered the initial shock of the Brexit vote, although the British pound’s value remains near a 30-year low, opinion is sharply divided over the long-term effects of leaving the EU. Major firms such as EasyJet and John Lewis have pointed out that the sterling slump has increased their costs. Britain also lost its top AAA credit rating, meaning higher borrowing costs for the government. The Bank of England cut interest rates from 0.5% to 0.25%, a record low and the first cut since 2009. In fairness, after the vote, there hasn’t been the economic slump or recession some had predicted. But the longer-term economic impact remains to be seen.
WHEN WILL BRITAIN ACTUALLY LEAVE THE EU?
The UK has to invoke Article 50 of the Lisbon Treaty to leave the EU. This gives both sides two years to agree on the terms of the split. UK Prime Minister Theresa May has said she intends to trigger this process by end March 2017, meaning the UK will be expected to have left by summer 2019. The British government will also enact a Great Repeal Bill which will end the primacy of EU law in the UK. It is expected to incorporate all EU legislation into UK law in one lump, after which the government will decide over a period of time what changes to make.
WHAT NEXT FOR IRELAND?
The seemingly robust economic data coming from the UK immediately after the Brexit vote may have generated some hope in Ireland that the economic risks might be contained. Businesses across Ireland have spent the best part of seven months wondering what the real impact of Brexit will be. For Irish businesses, the implications of Brexit bring two real economic threats: clear short-term risks, and huge uncertainty about the future. Above all, the problem in the next year or two could be volatility – in currency markets, in confidence, in trade and in investment. Our Government forecasters and private sector economists have crunched the numbers. The official GDP growth forecast for next year has been cut by half a point to 3.5%, though the sums for this were done before sterling’s recent rally. The rough guide is that every 1% cut in UK growth hits Ireland by 0.3-0.4%.
The harsh reality for businesses is that while all the political posturing and rhetoric continue without any concrete decisions, the markets do not wait for consensus; their responses are immediate and often cutting. The pound’s volatility and its current strength translate into higher prices for companies importing from the UK. The further knock-on effect is that companies exporting into Britain see their costs rise but a greater competitiveness on their overall pricing
THE NEXT BIG HURDLE
Uncertainty brings disruption and with that businesses struggle to maintain competitiveness. Should the UK exit without a solid agreement on taxes, tariffs and free trade, a plethora of bespoke taxes and charges would be laid-down by the World Trade Organisation that Irish businesses trading with the UK would have to pay. This would mean higher prices for the Irish consumer. This is all to be considered in the face of the new Trump administration and the seemingly ever-changing direction he is taking.
WHAT CAN IRISH-BASED FIRMS DO TO NAVIGATE THE UNCERTAINTY?
As a leader of global financial solutions, TransferMate Global Businesses have developed a range of tailored FX contracts to meet our clients’ specific needs. We understand that each business faces its own range of different challenges and, equally, we know the ever-changing global markets continue to throw down challenges that businesses must navigate if they are to survive. My best advice is to take action today. Speak to our trade experts on the best safeguards for your business. There are several short- and long-term strategies you can take that all aim to protect your bottom line and drive driving your competitiveness into the future.
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