Finally the news we have all been waiting for, and quite honestly you’re probably sick of hearing about it already. The referendum on whether Britain should remain in the European Union will be held on Thursday 23 June 2016. As a small business owner should you vote Yes or No?
Just this morning (23.02.16) the BBC have reported that some of Britain’s biggest companies have contributed to an open letter that states that leaving the European Union would threaten jobs and put the UK’s economy at risk. The big bosses at BT, Marks and Spencer, Burberry, Easyjet and Vodafone wrote to The Times, along with the chief executives of Heathrow and Gatwick airports, saying an EU exit would deter investment in the UK. However, a number of big names did not back the letter, including Tesco and Sainsburys, RBS and Barclays. No statement has been forthcoming from these companies as yet.
In other news, the Guardian has reported that the pound has started to fall against other major currencies after the recent Brexit announcements, and this may have long term consequences for Britain. Sterling closed on the FTSE last night, down to a seven-year low against the dollar. Meanwhile the ratings agency has warned the UK that their credit score may be at risk if we decide to leave the EU.
Why is the pound weakening?
Not all economists think leaving the EU will be bad for Britain in the long term, but here are some key points currently affecting Britain’s overall global standing in the near term:
• Investors will have less confidence in a UK that is not part of Europe.
• A less strong UK means investors do not want to hold sterling-dominated assets so they will look to investing elsewhere.
• Uncertainty about what will happen in June is not great for business and will affect export, investment and overall growth.
• There is unlikely to be any kind of raising of interest rates. The Bank of England is unlikely to consider raising the rate while the June result is unknown.
What does a weaker pound mean for you personally?
• Going abroad will be more expensive – you’ll get less bang for your buck
• If the pound continues to perform badly you will see price rises reflected in petrol, foods, and any goods that are imported (clothes, food, electronics, pretty much everything when you consider the lack of manufacturing in the UK currently).
• If you were planning to retire abroad, you will suffer thanks to the exchange. Over a million British expats reside in Spain and they will see the purchasing power of their salaries or pensions deteriorate against the Euro.
How does a weaker pound affect your business?
Brexit will have a profound effect on small businesses and medium enterprises. The good news is that a falling pound means that British exporters will make more money by sending goods overseas, as a strong pound makes goods to expensive when comparted to goods produced in Asia.
Conversely, if you’re a small business importing raw materials – such as steel for example – your costs will go up.
And what’s the expert view? Well, Jeremy Cook, chief economist at World First, a currency exchange company has indicated that smaller firms will feel the effects of referendum uncertainty most. He notes that, “The uncertainty over the coming months will now place great pressure on businesses, especially SMEs which are exporters and importers, as their balance sheets have far less ability to absorb major currency swings compared with their larger counterparts.”
Is the pound likely to fall further?
The short answer is yes. No-one can know for sure what the voters will opt to do and the markets hate uncertainty. Scotland, Wales and Northern Ireland have the most to lose by opting for Brexit as they get some sweet deals from the EU. Little Englanders may be swayed by the likes of Boris Johnson (in spite of his very clever, we’re all crazy cranks discourse from Sunday 21/02/16 that will appeal to those voters who want to sock it to the establishment) and there was a hefty sway of support for UKIP and Farage at the last election (although he will do himself out of a job oddly enough). There will be a general mistrust of the opinion polls because they got it so badly wrong during the 2015 election.
ING bank strategists have suggested that we, “ain’t seen nothing yet!” They reckon that, “The role of Brexit in steering recent pound price action can be likened to a rollercoaster warming up with some small twists and turns before an inevitable sharp drop.”
And the UK’s credit score?
The UK’s credit score remains stable currently at Aa1, but could be downgraded in the event we opt for Brexit. Fear of a reduced export market, and reduction in investment could ultimately lead to a lower credit rating. This would mean that we would have to pay more to borrow money, which would make it difficult to meet Conservative deficit reduction targets.
Over to you
What do you think of Brexit? Should we stay or should we go? What’s better for your business in the short term and in the long term? Chat with us on Facebook or leave a comment below.