These are the steps that we recommend taking with your business immediately. In this period, there will be a lot of uncertainty in your markets and also amongst your customers. The FTSE 100 and the £/€ exchange rate both have shown shock reactions since the 23rd June.
Here are 5 steps we’re taking that we recommend for businesses post-Brexit for the next two (ish) years:
1. Understand your business risk due to Sterling Fluctuations – Business post-Brexit
There are very few verticals that have no touch with European suppliers. Understanding your business risk associated with exposure to Sterling fluctuations is paramount over the next couple of years. Unicredit are estimating that we will see EUR-GBP reaching 0.90 and GBP-USD between 1.25 & 1.30. How would buying and selling at these values affect your business? If you import materials from outside Sterling, there could be relatively large increases in the cost of these items, although selling into these markets may allow your products to be more competitive in foreign markets. Simple solutions that build new geographical market places can be easily and simply setup using Amazon. Although expensive, testing markets in this way can be very successful.
2. Understand Business risk due to losses from EU funding – Business post-Brexit
EU funding is prevalent in many vertical sectors in the UK. Some of the largest sums can be found in science, pharmaceuticals and farming. According to Science mag, in the last decade, the UK has topped £8.04bn in funding. It is a fair assumption that without a commitment from the UK’s government to replace funds, these companies will move from the UK. The risk is, if you have a large exposure to these markets, can you still provide the same product if they move? Or will this expose you to currency fluctuations, potential new taxes and costs?
3. Expansion of professional lobbying of Whitehall – Business post-Brexit
Professional bodies will take steps to become more powerful and find new ways to make their voices heard. Over the two year period after the triggering of Article 50 of the Lisbon Treaty, the UK will have to negotiate new/different trade deals with Europe and the rest of the world. This could be a huge potential benefit for companies to get involved through lobbying and potentially improve the way they trade. Whitehall will have to renegotiate around 80,000 pages of EU agreements and subsequently decide what will become UK law and what will be got ridden of. There will undoubtedly be increases in sectors working together to provide more pressure on the government; by being part of your sector’s professional body, you can help pressure new laws that will affect your business… more information on Lobbying can be found here http://www.lobbying-register.uk/. New laws and rules could stimulate sectors of the economy, it is just a case of listening very carefully to what is being passed and changed.
4. The rules of business will not change, example: Greenland’s Exit in 1985 – Business post-Brexit
Greenland is the only other country to leave the EU. In 1982, motivated by the EU’s control of its fishing industry, Greenland voted 52% in favour to leave the EU. Apart from the referendum result, there are very few market similarities between Greenland and the UK, however.
- Greenland has a population of 56k vs 64M in the UK.
- Greenland’s economy is dominated (90%) by a single industry – fishing.
Greenland took 3 years to negotiate their exit. The keynotes are that the relationship between the EU and Greenland are generally good, but they are still ruled by the Danish crown. This means its people remain EU citizens. Greenland leaving the EU has not freed them from Brussels regulations – the original goal. If Greenland wants to sell its fish into the single market (which it must) they still must obey all the European rules and regulations. However, as they are not part of Europe they can no longer influence these rules. If trade agreements cannot be negotiated within the Article 50 time frames, the default world trade organization rules will be applied. More information about Greenland 1985 EU exit.
This example shows that the format for the departure is not set in stone. There are many different scenarios that the UK could agree to over the next couple of years of negotiation. According to Forrest, scenarios include that the current status quo prevails and the UK carries on trading with the EU under existing free movement principles. “That outcome is not beyond the realms of possibility,” he says. However, that means freedom of movement for goods, people and capital between the UK and EU will continue to operate. John Forrest, the Head of International Trade at law firm DLA Piper – Interview with The Guardian
In Greenland’s 1985 agreement, it continued to receive aid approximately equal to what it was getting before from the EU’s regional fund (this ended in 2006). The EU contributed around 7 per cent of Greenland’s budget (or around 40m.), while Denmark provided another 60 per cent, and the balance was raised by the Greenlanders themselves.
5. Interest rates & inflation – Business post-Brexit
Mark Carney, the governor of the Bank of England has always been very clear about his views on the UK’s position in Europe. His job now is to minimise financial fall outs; the way he will do this is to show the markets they are still in control. The Bank of England has previously announced “special liquidity auctions” around the time of the vote to ensure the British banks do not run short of funds, with the aim to offset any possibility of a run on the banks, or the issues seen in the the 2008 financial crisis. Barclays forecast core inflation to average 1.7% this year and 2.3% next year. Having a liquid financial position and the ability to be flexible will be advantageous as opportunities present themselves. The markets will decide if Mark Carney’s actions are enough to maintain their confidence.
Conclusion – Business post-Brexit
The short term outlook is undoubtedly turbulent, but in any change, there are many opportunities. What’s important to any business, online or offline, is to fully understand the extent of their risk exposure in the short term and take steps to ensure that they adequate liquidity and flexibility in their business to manoeuvre their ship though the worst of the storms. The long term changes are where the greatest opportunity lies and only by very closely monitoring what is coming from Whitehall over the next few years of negotiations and subsequent reactions of the markets should ultimately dictate your midterm (1-3 year) business plans.
While every effort has been taken to verify the accuracy of this information, Blue Thirst Ltd. cannot accept any responsibility or liability for reliance by any person on this report or any of the information, opinions or conclusions set out in this report.