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10 ways Brexit will impact UK business

Ahead of the vote, Proactive sifts through all the referendum chatter and looks at the big questions in the world of business hanging over Brexit.
Brexit boxing gloves
Today is the last day of campaigning ahead of tomorrow's vote.

Britain, the third largest economy in Europe and the fifth largest in the world, is facing its biggest test of identity on Thursday, as UK citizens decide on whether or not to remain part of the Europe Union.

Both sides have been relentless in their rally of how a vote to leave or to remain would affect the country, the economy, the consumer and business. 

Here at Proactive Investors, we've sifted through the noise and picked out some of the key concerns being discussed ahead of the vote.

Below are the ten things most talked about in regards to Brexit:

Manufacturing: The experts are divided

Gerard Lyons of Economists for Brexit, believes a Leave vote would be a good thing for the UK’s manufacturing industry.

“There is a reason why our internationally competitive manufacturing companies such as JCB and Dyson support Brexit. To survive and compete the UK has to expose itself to international competition and needs to focus on selling into the fast growing markets of the future,” wrote Lyons.

A weaker pound and lower rates are likely to follow Brexit, but Lyons believes this would be a good thing for manufacturing.

Outside of the EU, the industry would be free to compete internationally, which is only a good thing for an already world class manufacturing business.

Chief economic advisor Patrick Minford disagrees however, he stated that Brexit would “eliminate” UK manufacturing, which he said was more reliant than ever on European trade. His point was reiterated by London Mayor Sadiq Khan when addressing his pro-Brexit predecessor Boris Johnson earlier this week.

Companies would find it harder to obtain bank loans, and they would face a slowing domestic market, if the UK chose Brexit, said the analyst.

“Brexit would lead to a more competitive exchange rate, but it likely would restrict manufacturers’ ability to export to the single market and to other countries which have trade deals with the EU,” began Samuel Tombs chief UK economist at Pantheon Macro.

Commodities: Chocolate and gas

A vote to leave, the pound is expected to plummet, providing a boost to commodities currently denominated by the sterling, making them cheaper in other countries.

Commodities, such as copper, oil and gold, are mostly priced in dollars.

But cocoa, the key component of chocolate, is still denominated in sterling. According to Max Goettler, a trader at Cocoanect in Rotterdam, a Brexit would cause a sharp rally in the London-traded cocoa contract.

UK natural gas is also expected to rally in the wake of a Brexit as prices would also increase, reckon traders. This rise could well reverberate through other gas markets closely linked to the UK contract, namely the Netherlands, with whom the UK shares a gas pipeline.

In gold however, when the Fed cut interest rate expectations last week over Brexit concerns, the price hit a two-year high above $1,300 an ounce, causing gold miner shares to spike.

 “We are in wait and see mode still, ahead of Thursday’s referendum and this was shown by gold’s movement yesterday,” said David Govett, head of precious metals at Marex Spectron.

The close polls last night will make the markets believe that we are in for a close vote, reckoned Govett, “for that reason I would expect precious metals prices to continue sideways.”

Construction: Uncertainty is holding us back

One of the driving issues surrounding the Brexit debate has been control on immigration, a delicate issue in itself. But analysts seem united when it comes to the affect restriction of migrant workers could have on the construction industry. Demand for labour in this industry increasingly outstrips supply and with heavy associated costs, construction is reliant on the man power provided by migrant workers.

This would be particularly pertinent to large building projects currently underway in the UK, including London’s Crossrail, HS2 and the nuclear power programme.

Changes in taxation and reduction in foreign investment – particularly relating to commercial and residential builds – as well as supply of goods and services could all negatively affect the industry.

As for lifting of regulation, most of the current EU laws surrounding the industry are already engrained in UK law, so any significant change is highly unlikely, at least in the short term.

Analysts at Liberum have tipped construction and housebuilding as key benefactors of a Remain vote as uncertainty dissipates.

Top-end house builder Berkeley, with the most exposure to London, has already seen slowing of sales ahead of the referendum. A Remain decision would see anyone waiting in the wings become active again, returning trade to pre-uncertainty levels.

The Juncker Plan: Alternative funding?

The Juncker Plan, also known as the European Fund for Strategic Investment, is a programme aimed at unlocking €315bn of investment over three years in projects across the EU.

A Brexit vote would mean any projects currently relying on investment under the Juncker Plan would be hit by a period of adjustment and uncertainty. Should any investment be withdrawn, the UK would face the challenge of securing alternative funding.

Around 2,000 projects across Europe worth some €1.3trillion of potential investments have been rolled out since the plan's inception in 2014. The UK was one of the largest initial contributors to the plan, which included development of flood defense in the country, but could well lose this investment if we withdraw.

Pharm and Tech: Limited impact say analysts, but scientists don't agree

Liberum said that the Pharmaceuticals and Tech in particular would see a limited impact with few material implications. Potential foreign exchange positives in these sectors would outweigh any possible frictions to trade in case of Brexit, said the broker.

However the British scientific research community has come out in favour of remaining, saying Brexit was a serious threat to funding and innovation. Polls reveal that over 80% of scientists oppose Brexit. The EU is a significant funder for UK science and innovation. Britain generates 16% of top-impact research papers worldwide, so applications for grants are well received by Brussels.

As one of the UK’s leading manufacturing sectors, pharmaceuticals would be highly exposed to any difficulty caused by change in regulation if we separate from EU laws.

Sugar: Relations with Brussels turn sour

One of Britain’s oldest firms, the sugar refiner Tate &Lyle, has come out in favour of Brexit.

In a letter to staff, vice president Gerald Mason said leaving the EU would benefit the business, as EU tariffs pushed up the firms costs and made it harder to compete in the global market.

"We pay as much as 3.5m euros of import tariffs to the European Union on some of the boats of cane sugar that unload at our refinery, only for the European Union to then send that money to subsidise our beet sugar producing competitors in Europe,” said Mason.

He said the company was rapidly losing money thanks to EU regulations.

"Last year EU restrictions and tariffs pushed our raw material costs up by nearly 40m euros (£31m) alone, turning what should have been a good profit that we would all share into a 25m euros loss," he told employees.

Food prices and even the cost of a tipple

The price of groceries has fallen every month since September 2014, but Brexit could reverse that decline, meaning households would be worse off.

Former bosses of some of Britain’s biggest retailers said that the cost of food, drink and clothing would rise if we left the EU.

Ex-chief executives  of some of the UK’s top supermarkets said that supply chain disruption and a drop in the pound would cause prices to spike.

Even wine could be affected: “If a Brexit does happen and that results in the sustained fall in value of the pound, all imported products will have to go up in cost over time and wine will be no exception to that,” said Majestic Wine boss Rowan Gormley.

London: A blow to the health of the Capital

Chancellor George Osborne warned a vote to leave would be a major blow to the health of the UK economy and the capital.

Major banks such as HSBC and JP Morgan have said that jobs would be lost in the capital if Brexit goes ahead and the French economic watchdog agreed.

Mathilde Lemoine of France’s Office for Budget Responsibility told the press that London-based European transactions would inevitably shift to the Eurozone.

She reiterated the European Central Bank’s view that euro-dominated business worth billions would be better cleared on the continent.

As for the stock market: “Financials, banks, construction and housing stocks are very sensitive to Brexit-related volatility, while healthcare, consumer staples and utility stocks are expected to fluctuate less, both on the positive and the negative side on the run to the referendum,” said Ipek Ozkardeskaya, analyst at London Capital Group.

Wages could be hit

The Institute for Fiscal Studies, the National Institute of Economic and Social Research and the Centre for Economic Performance have all predicted lower real wages in the event of Brexit, higher prices for goods and services, higher unemployment and higher borrowing costs.

“In our lifetimes we have never seen such a degree of unanimity among economists on a major policy issue,” the directors of the three institutions said in a joint statement released today.

“We would be financially worse off outside the EU than in is almost certainly true.”

Writing in the Guardian, legendary investor George Soros – famous for betting against the pound on Black Wednesday in 1992 - warned of “serious consequences” for British jobs and finances if the country leaves.

Vote Leave’s chief executive Matthew Elliott accused Soros of wanting to give more power to Brussels.

The Economy: The big one

“The EU is costly, bureaucratic and blind to the impact it had on people’s wages,” Elliott said in response to the Guardian piece.

Hefty public borrowing reflects the impact of uncertainty created by the EU referendum on the economy, said Chris Beauchamp, senior market analyst at IG.

“The latest figures therefore provide just a taste of what Brexit would do to the health of the government’s finances,” said the analyst.

Three of the UK’s top independent economic institutions have issued a “final warning” on Brexit, saying it will “almost certainly” be worse off if we leave the EU. Never before have so many experts been unanimous in their agreement over the economic question mark that lingers over a possible Leave vote.

The Institute for Fiscal Studies, the National Institute of Economic and Social Research and the Centre for Economic Performance have all predicted lower real wages in the event of Brexit, higher prices for goods and services, higher unemployment and higher borrowing costs.

“In our lifetimes we have never seen such a degree of unanimity among economists on a major policy issue,” the directors of the three institutions said in a joint statement released earlier this week.

“We would be financially worse off outside the EU than in is almost certainly true.”

The purported £10bn Brexit dividend for public services was deemed “almost certainly untrue” by the institutes. However Remain’s assertion that household’s would be over £4,000 a year worse off by 2030 were deemed to be uncertain.

Read our daily Brexit diary.

 

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