Britain voted in record numbers on Thursday, in a referendum on whether to Leave or Remain in the European Union. Of the 72.2% voter turnout, 51.9% of voters voted Leave while 48.1% cast their ballot for Remain.
With the final outcome of the referendum being the United Kingdom leaving the EU, a lot of uncertainty will inevitably follow. No longer being a part of the larger economic union means that the UK will be required to establish new trading arrangements with countries both in the EU and outside of the EU. These arrangements could take many different forms, such as favoured nation status, bi-lateral accords and/or membership in the European Economic Area.
The negotiations for the UK to leave the EU could take up to two years and, during this time, international exchange rates are likely to be sent on a roller coaster ride, as seen directly in the aftermath of the Brexit announcement where the British Pound Sterling dropped in value as soon as markets opened on Friday morning to hit a 30 year low. With the weakening of the Pound, Foreign Direct Investments will decrease, which will have a direct affect on British businesses.
With the UK vote to leave the economic union, UK companies could experience a significant impact in terms of economies of scale, supply of goods and access to skills and people due to the current high level of cross-border integration that exists between the UK and the EU. This will also mean that, for the first time in half a century, British companies with integrated European supply chains that have become a feature of advanced manufacturing will face customs barriers, slowing down business operations.
Another question that the Leave outcome presents is around jobs. The Brexit will end the free movement of labour from the EU into the UK. Former M&S boss, Lord Rose, claims that 3 million jobs are associated with Britain’s membership of the EU, and the splitting of ties would make it harder for many retailers to recruit all the store staff they need in major cities, particularly those who depend on a large Eastern European staff in, for example, warehouses.
However, within this high level of uncertainty there may be advantages to Brexit. It may help to push up wages as low cost labour from the EU is curtailed. This could generate higher consumer spending in shops. With higher wages also set to kick-in because of the new ‘living wage’, phased in by stages up to 2020, we could see a push for increased retail automation as retailers attempt to reduce their operation costs.
So, if you’re a British company, what does this mean for your supply chain and business operations?
In short, a lot of uncertainty. Even though a two-year negotiation term could prolong the period of uncertainty on all economic aspects, it would also allow businesses more time to make the necessary structural adjustments and allow negotiations between the UK and the EU to reach satisfactory conclusions. For now, British companies will just have to wait and see.