Six must-reads about Brexit

5 July 2016

“How will pet passports be affected?” This enquiry, posted on the Daily Mail website, reminds us that many aspects of Brexit remain unclear. That said, most of us will not lose sleep over the repercussions for pet passports.

The NGO Carbon Brief’s concerns are more mainstream, as they list 94 unanswered questions Brexit poses about climate and energy policy. To be honest, many were unanswered before, but the result does raise questions about the UK’s energy costs, investments in renewable energy and whether the next administration will be more skeptical about climate change than David Cameron’s.

The foreign media has contemplated Brexit with confusion, consternation and condescension. The Washington Post called it “an act of national insanity”. Economist Ben Bernanke, who ran America’s central bank from 2006 to 2014, gave a more considered view for the Brookings Institution. “The biggest losers, economically speaking, will be the British themselves,” said Bernanke.

Years of “tremendous uncertainty” would, he warned, exacerbate the UK’s economic slowdown, damage confidence among consumers and companies, undermine the value of houses, commercial real estate and stocks, and deter start-ups, capital investment and hiring. In the long run, he said: “The economic costs to the UK will still exceed the benefits”. The only upside? A weaker pound would make British exports more competitive.

Bernanke deemed a global economic meltdown unlikely but warned: “The biggest risks to financial stability at this point appear to be political – specifically the risk of further defections or breakdown in the European Union – rather than economic. The story may not be over yet.”

Digby Jones, the former CBI chief who describes himself as a “reluctant Brexiteer”, offers an uplifting alternative to Bernanke. On a blog headlined: “A brave new morning”, Jones sounds anything but reluctant, hailing a “revolution against the ‘Nanny knows best’ brigade” and proclaiming: “It is in the interests of businesses on both sides of the Channel for a new set of rules to be agreed soonest, and for them merely to continue the present trading situation. That message should be shouted loudly from the rooftops every day!”

Pro-Brexit economist Roger Bootle is less gung ho than Jones, but remains confident, that leaving the EU will not wreck UK Plc. He forecasts that the British economy will expand 1.5% this year – and by that amount in 2017 – although he expects no growth whatsoever in the second half of 2016. Like Bernanke, Bootle believes a weaker pound could ultimately make British manufacturing more competitive.

Though hardly impartial, Bootle is right to say that most doomsday Brexit scenarios did not factor in any reaction by policy makers. His pithy advice to the next Chancellor of the Exchequer, whoever that might be, is: “Brexit is not an economic catastrophe, but a fresh austerity drive would be disastrous.”

Eurocrats will care less about the British economy and more about the threat identified by Bernanke: that Brexit could encourage other nations to quit.

Writing for German broadcaster Deutsche Welle Friedel Taube challenges the stereotype that Brexit pits 27 EU-loving nations against the UK. Voters in Netherlands and France rejected a European constitution in 2005 and Sweden spurned the Euro in a referendum in 2003. (In one recent survey, only 39% of Swedes think being in the EU is a good thing.) And then there’s Denmark. As Taube writes: “Little old Denmark has been granted more EU opt-outs than any other member.” The most glaring of those being the fact that two large parts of Denmark – Greenland and the Faroe Islands – do not belong to the European Union at all.

Does this set a precedent in reverse for Scotland: could it remain while England and Wales leave? That’s one more thing for lawyers, scholars and diplomats to parse.

Every company will have its view of Brexit’s risks and rewards. At this point, inevitably, risks loom largest. British farmers, relying on the Common Agricultural Policy for 55% of their income, are especially nervous though they have been reassured over funding by ministers and may ultimately benefit if supermarkets source more food in the UK.

Britain’s booming automotive industry, which exported 58% of its vehicles to the EU last year, has stressed that free access to the single market is essential to safeguard its future prosperity. While many pro-Brexit economists suggest the UK could flourish without such access – trading through the World Trade Organisation – such bullishness is not shared in many British boardrooms.

Writing in Harvard Business Review, Boston Consulting Group’s Martin Reeves and Philipp Carlsson-Szlezak underline British business leaders’ concerns: “The EU represents 47% of UK exports, facilitates an additional 13% through non-EU trade deals, and currently negotiates with countries worth an additional 21% of UK exports.” Even if British negotiators struck eight deals that cover 80% of its exports, 18 other countries are collectively worth $1bn to UK exporters.

Reeves and Carlsson-Szlezak urge companies to analyse four sources of uncertainty – political process, the financial economy, trade and the real economy – and map how they could affect their business model. For example, how will the volatility – and scale of – corrections in terms of stocks, currency and interest rates interfere with planning and investment decisions?

As they note: “Individual companies vary widely in terms of these uncertainties, due to their differential dependence on UK and EU production, demand and trade, global trade, regulation and integration into EU structures (e.g. R&D subsidies, EU norms and standards).” So each company must do its own impact analysis, assess the likelihood of particular risks, test their resilience, scrutinise their contracts, formulate responses and adapt their strategies accordingly.

Brexit could, Reeves and Carlsson-Szlezak suggest, be the first of many geopolitical/economic uncertainties to come which will make strategy and execution more complex (especially for big global companies) and compel businesses of all sizes to develop strategies that are flexible, adaptive and resilient enough to cope with uncertainty.

Alas, their authoritative article offers no guidance on Brexit’s implications for pet passports.

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