Britain's vote to exit the EU - Issues that matter report

08 July 2016

BREXIT - MANAGING THE CHALLENGE

As markets and businesses digest the result of the UK’s referendum on 23 June, a more settled picture of the short and long-term effects is coming into view.

CONTINUITY

You will have seen discussion of many different scenarios flowing from the UK’s decision to leave the European Union. We do not as yet have a firm view on which outcome is most likely, but while some clearly imply more effort to manage than others, we do not see a crisis scenario. The guidance to avoid reflex decisions holds true – nothing changes yet, and business carries on as usual.

For now, the greater risk comes from uncertainty on financial markets, and its consequential effect on the decision-making of companies, investors, central banks and others. This is unhelpful for major investments, somewhat raising the likelihood of a technical recession in the UK and placing some strain on the weakest links in the Eurozone.

Our Credit, Political and Security team do not see contagion or a domino effect arising from this temporary stress – the fundamentals remain as robust as they were on 23 June, when markets were relatively buoyant.

We further note that volatility is two-sided – while it creates real stresses, it can also open up new opportunities for those not adopting a fully defensive posture.

WHY DOES BREXIT MATTER? 

1. London is Europe’s financial centre, the location that global financial service companies conduct Euro clearing and other core operations. If and when the UK exits the EU or its single market (EEA), some of these processes might shift to the continent.

2. The UK is one of three European heavyweights and a main contributor to the EU’s finances. If it completes Article 50 exit, this puts the future of the EU under scrutiny and is likely to force the pace of change within that institution.

3. Globally integrated processes reliant on the UK’s legal status as an EU member will need thorough review, a potentially time and value-consuming process.

To read the full report, click here.

Rory MacLeay
Managing Director, JLT International Network