If EU referendum opinion polls are to be believed, the vote on whether to stay part of the EU or ‘Brexit’ will be close, so what could the fallout be on June 23rd? The truth is that no one really knows. There are benefits and drawbacks to either outcome and both options are considered to have associated risks.
The build up to the big vote has already had a significant impact on the British Pound, with Sterling plummeting across the board against the majors and GBP/EUR losing as much as ten cents. But how has it affected the wider UK economy and what are the long-term repercussions likely to be?
With an immigration crisis to contend with, failing member state economies, growing divisions and the threat that talk of a ‘Brexit’ could prompt other nations to jump ship, the European Union is standing on uncertain ground.
Most economists agree that the impact of a ‘Brexit’ would be far more damaging to the EU in the long-term, especially as it could be the catalyst that sparks disillusioned member states to follow suit.
Those campaigning for the UK to leave have used the EU’s current circumstances as leverage, arguing that the UK would be better off detached from these issues . Pro ‘Brexit’ official Boris Johnson recently argued that the UK will be forced to hand Brussels an extra £2.4 billion if it stays in the EU, stating;
‘The public cannot trust EU or Government promises that we won’t be paying for Eurozone bailouts given the history and how we can be outvoted. The risks of Remain are massive. Not only do we hand over more than £350 million a week to the EU, but if we vote to stay the British people will be on the hook for even more cash. It is a triple whammy of woe: the Eurozone is being strangled by stagnation, unemployment and a lack of growth, it could explode at any time and we will be forced to bail it out.’
But is this fact, fiction or plain conjecture?
It could be argued that whether as a member of the EU or not, its failure would have an impact on the UK. But aside from this fairly obvious prediction, the rest can only be described as conjecture.
The UK could work with the rest of the EU to reverse current trends and improve the body’s outlook from the inside. Similarly, the UK could forge its own, independent ties which may insulate against a crisis in Europe, although not protect it completely.
‘Remain’ campaigners have rejected arguments that the EU is failing and claim that Prime Minister David Cameron has already landed reforms that protect the UK. On Twitter, Cameron wrote;
‘The Leave campaign is simply wrong to claim we will have to bailout Eurozone countries. We are not part of Eurozone bailout schemes. We also have a veto over any EU budget increases.’
EU member states have agreed, in principle, to the UK being exempt of bailouts for Eurozone countries. This has not been solidified and remains a controversial subject.
So if the UK leaving the EU may insulate but not fully protect against failure, will a ‘Brexit’ be good or bad for British business?
The answer is probably both.
There are businesses that have become increasingly competitive as a result of selling products to Europe. Whilst leaving the EU is unlikely to see Europeans reject British products, there is a high chance that the process will become more challenging and therefore more expensive.
There are also businesses that have lost out as a result of being an EU member state. One notable example is Tate and Lyle which claims that EU tariffs on importing sugar cane will cripple the business within years.
In the main, however, UK businesses are campaigning for Britain to remain an EU member state. Most endorsement has come from the financial services industry. Given that the financial services industry carries a lot of clout, it’s support could potentially swing the vote for the undecided.
For example, Royal Bank of Scotland chief executive Ross McEwan stated;
‘I can’t see an economic scenario where coming out of the EU is a good thing for the bank or the banking industry as a whole in the short to medium term.’
Voting for a ‘Brexit’ is risky because of the relative unknowns compared with continued membership of the European Union, but as explained above, voting to remain is certainly not void of risk.
Aside from growing divisions within the government and between key figures, how has the EU referendum already affected the UK?
It has certainly had an impact economically, thanks to the detrimental impact of uncertainty. As stated by Markus Kerber, director-general of the BDI,;
‘Companies react to uncertainty by delaying or reducing their investment.’
The British Pound lost considerable value following the announcement of the referendum date, and business confidence retracted.
Industrial, Manufacturing and Construction output have all been negatively impacted by uncertainty with big businesses reluctant to make large orders or hire new staff ahead of the outcome.
Rain Newton-Smith, director of economics at CBI, asserted;
‘Now that the referendum date has been set, some investment decisions have been put on hold by some firms.’
Foreign investment has also slowed with expectations of massive reductions in the event of a ‘Brexit’.
Whilst all this seems to suggest that a ‘Brexit’ is bad for the economy, this is not necessarily true. In the main, it is uncertainty that has had a detrimental impact.
The Bank of England (BoE) Monetary Policy Committee (MPC) policy statement highlighted the detrimental impact of EU referendum uncertainty, stating;
‘The most significant risks to the [economic] forecast concern the referendum.’
Many investors fear change, so it can be argued that a ‘Brexit’ will damage Britain in the short-term at least. But it is also true that economics changes rapidly, trader sentiment shifts constantly and there is always the chance that the UK will thrive independent of the EU.
As is becoming increasingly apparent, the political strategies employed by both the ‘Leave’ and the ‘Remain’ campaigns have been lacking in certain areas and have come under fire from the opposing side. Instead of admitting that both outcomes have pros and cons and encouraging voters to base their decision on what best suits their needs, scare-mongering tactics have become ever more present.
This has likely been a factor behind the divergent results from opinion polls and the high number of uncertain voters. The clear divides between Britain’s major political players exposed by this issue could have a greater long-term impact on the UK than the actual result itself. One thing is for certain, close to half the country will be unhappy.
The build up to the vote has divided Britain, and the result is likely to divide Britain further.
Which outcome would support a stronger, healthier Europe? Could an independent Britain survive?
While answers to these questions won’t be immediately apparent following the vote, June 23rd could mark a pivotal point in the UK’s history.
© TorFX. Unauthorised copying or re-wording of this blog content is prohibited. The copyright of this content is owned by Tor Currency Exchange Ltd. Any unauthorised copying or re-wording will constitute an infringement of copyright.