Brexit: The lion has roared, time to hold steady
Nerves need to be held as we enter uncharted seas to an uncertain destination. The referendum result, despite convulsing markets, at this stage changes only sentiment and certainty. We remain in the EU, and the process of leaving will take at least two years to negotiate.
The initial currency devaluation will translate into tangible costs, straight away for travellers but soon for businesses that import. Those that export will benefit, but perhaps only before longer term uncertainty about tariffs and markets sets in.
There are also damaging implications for inward investment, which may take its first visible form in falling London property prices. These have risen in large part due to overseas interest that may, at least in the short term, dwindle. Businesses that want to locate in the UK from overseas in order to have access to the EU single market are likely to pause or switch to another member state.
Keep calm and carry on
Yet we must hold steady. The UK is today still the world’s fifth largest economy and what we always have been: a trading nation with great expertise, as we have within Kreston Reeves, in building connections with other countries. Half of that trade is with the EU, making it hard to see why renegotiated arrangements would be punitive.
Our message to all businesses is that they should simply carry on, but also look for opportunity from the uncertainty. The worst reaction would be to be mesmerised into inactivity.
We must expect that however long and hard the process, the Government will work to open new markets as well as secure a workable arrangement with the EU. It can do no less. There can now be no greater priority for the country.
A particular effort will be needed to protect the position of the City of London as a global financial centre. It is an enormous generator of wealth for the UK and the financial services sector a major employer.
This is the time to think carefully about your business and finances, to take guidance from professional advisors who will now be putting huge, inventive energy into minimising the impact on clients.
The referendum was a certainty for a long time. As a result, many investors will already have drastically reduced their equity holdings in the UK and moved much of their portfolios abroad.
Until the longer term position becomes clearer, it is likely people will still keep their assets away from what may become a very volatile domestic investment market. Others will find investing opportunities from the same volatility.
Taking the long-view
History suggests that whatever the initial shock, markets return to steady, long-term averages with remarkable speed. We might therefore expect history to repeat itself.
Meanwhile, our economy continues to grow, with reasonable construction and trade figures anyway this year despite the looming referendum. We created 55,000 new jobs in the last quarter even with the introduction of the National Living Wage.
We can hope that the professional investment funds sitting on large cash piles until the result was clear now finally invest, giving a boost to the economy. They need to see opportunity, too.
Many businesses have strong balance sheets and want to grow their enterprises. That will not alter. The desire to trade internationally is not diminished because of a vote driven by political, not economic, arguments.
Brexit will also be an opportunity to review regulations and ensure that they strike the CORRECT balance between rights and obligations. Perhaps we will finally see a bonfire of ‘red tape’ to ease burdens for many.
We are a competitive, inventive economy well equipped to battle for market share on the basis of quality not protectionism, so let us expect to flourish. We have the advantage of language, location and legal system. Our tax REGIME is favourable. These remain in place. We should be stimulated by the prospect of extraordinary change.
If you have any concerns or issues you would like to discuss regarding the implications for your business or personal finances, please speak with your usual Kreston Reeves contact, or contact me and I will forward your query to one of our sector or service specialists.
Clive Stevens is Head of Taxation and Chairman of Kreston Reeves
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