Nigel Hawkins is again our feature writer of the month. Last month it was a review of the UK/ EU Electricity Sector – this time he has again turned his attentions to UK/EU Relations by assessing the risks to the UK financial and business sectors from our possible exit from the EU. The main conclusions from Nigel’s analysis are: The £ Sterling will be volatile, especially if Brexit prevails. Few of the largest FTSE 100 stocks are heavily exposed to the EU- Vodafone being a notable exception. A vote for Brexit may be the start of a long drawn out process of exiting the EU – if the UK Parliament approves the relevant legislation. Major changes in the tariff rates would have a significant impact but existing trade arrangements may last for many years.
The forthcoming referendum on EU membership presents the UK electorate with the opportunity to vote on the UK’s role within mainland Europe. Whilst there was a previous referendum, this was over 40 years ago; it focussed primarily on trade opportunities and the issue of sovereignty. Today, the issues are more varied, with widespread disillusionment with the EU and profound concerns about immigration – and especially the freedom of movement within the EU – being to the fore.
If supporters of Brexit were to prevail in the referendum – an odds against scenario – the macro-economic impact would be considerable. It seems clear that, even in the lead-up to the referendum, sterling’s performance will be rocky. After June 23rd, it could be even rockier. Furthermore, should the electorate vote for Brexit, there will be considerable debate about trade policy and the extent to which tariffs will be imposed on the UK’s imports and exports to and from the EU.
At the micro-economic level, many UK companies will be impacted. Significantly, most of the largest UK companies are so international that any adverse effects can be comfortably absorbed; companies, such as Royal Dutch Shell and HSBC, would fit into this category. More specifically, many smaller FT-350 companies, with major dependence on exports to the EU, could find themselves exposed, especially if tariff barriers were erected in the short-term.