- Weak currency and reduced credit rating: Sterling plunged to a 30-year low, driven by the Bank of England’s economic stimulus measures. The weaker currency stimulated demand for cheaper UK exports, but also led to a 7.6% increase in cost of materials and fuel for UK manufacturers. Within days of the vote, the UK lost its prized AAA credit rating. Currently, it is impossible to predict where the pound will be by the time the UK finalizes its new trade agreements. There is a possibility that such currency movements may result in the outflow of capital from the UK and the EU towards ‘safer havens’ such as the US and Japan. What’s more, the reduced credit rating will increase the cost of government borrowing, leading to either reduced borrowing or limited public spending.
- Uncertain business environment: Business stakes are high as almost 63% of UK exports go to either EU countries or those covered by the union’s free trade agreements. That is why, business confidence currently is quite fragile. While some companies have already announced their decision to leave the country, others are developing plans to limit the damage of the exit as well as quantifying the cost of a “hard” Brexit: USD 607 million of profit for Nissan, and USD 750 million of revenue for Credit Suisse.
- Financial services sector in panic mode: It appears likely that London-based banks will lose their ‘passporting’ rights, which allow them to sell their services across the EU. This will affect the UK financial sector severely. Already, JP Morgan CEO Jamie Dimon has announced that the bank would transfer 1,000 jobs from London if the rights are lost, while Goldman Sachs plans to displace 3,000 jobs (half of its UK workforce) to various EU countries. Other firms (such as Citigroup) plan to establish dual operations centres and split their activities between EU countries and the post-Brexit UK.
