UK economy plunges into Brexit unknown
LONDON, June 24, 2016 (AFP) – Britain’s economy plunged into a dizzying unknown Friday, as the world economy braced for a hit to growth and unemployment after the UK voted to ditch the EU.
Financial markets illustrated the turbulence that could lie ahead for the world’s fifth biggest economy, with the pound collapsing to its lowest level against the dollar since 1985 and equity investors nursing heavy losses.
Campaigners wanting Britain to remain part of the European Union argued long and hard about the economic risks of Brexit, but ultimately failed to convince a majority of voters in Thursday’s referendum.
The UK must now face up to the swirling winds of economic change, as International Monetary Fund chief Christine Lagarde called on Britain and Europe to work together to ensure that the pullout will occur smoothly.
In the immediate term, a financial storm has already blown far and wide across global trading floors.
“It’s been a bloodbath. Carnage,” said David Papier, head of sales trading at ETX Capital, with shares in British lenders Barclays and state-rescued Royal Bank of Scotland losing around a third of their value in early deals.
The many political uncertainties linked to the lengthy exit process are also set to impact Britain’s economy in the medium to long-term, according to experts.
Conservative Prime Minister David Cameron — who campaigned for Britain to remain — announced his resignation Friday after losing the referendum and plans to step down by October.
Cameron warned prior to Thursday’s vote that it could take more than a decade for the UK to negotiate both an exit from the bloc and new international trade deals.
Campaigners and supporters of Brexit downplayed this and many other warnings on the economic fallout of Britain’s departure from the bloc.
Nevertheless, the World Trade Organization has predicted that British exporters risk an extra £5.6 billion ($8.2 billion, 7.2 billion euros) of extra annual customs duties following Brexit.
Whether these are lifted during Britain’s period of transition remains to be seen, while the country’s banking and car manufacturing sectors have made it clear that jobs would have to be relocated abroad because of the vote’s outcome.
US investment bank JPMorgan Chase on Friday warned that it could relocate UK jobs abroad in reaction to the vote.
JPMorgan employs 16,000 people in Britain, while chairman and chief executive Jamie Dimon previously said that up to 4,000 jobs could move out of the UK.
Following an EU exit, London could shed 100,000 jobs, according to finance lobbyists TheCityUK ahead of the vote.
“There are a number of large companies that say they are using the UK as a gateway to Europe and a number of companies have said that they would relocate their headquarters in the event of a Brexit — moving out of London to other financial centres in Europe,” said Scott Corfe, a director at the independent Centre for Economics and Business Research.
– Immigration impact –
A decision to leave could also change Britain’s immigration landscape if fewer people from EU countries come to Britain to work — another factor which risks impacting on UK economic growth.
According to the IMF, in the worst-case scenario, the UK economy could sink into recession next year and overall economic output would be 5.6 percent lower than otherwise forecast by 2019, with unemployment rising back above six percent from 5.0 percent currently.
Experts have warned also of tumbling tax receipts and of Britain potentially losing its AAA credit ratings — affecting the amount of money it can borrow on markets at a time when it is still slashing state spending under a severe austerity programme triggered by the 2008 global financial crisis.
Highlighting the uncertainty, Jean-Michel Six, of SP Global Ratings, told AFP that the Brexit result “increases” the risk of Britain losing its AAA assessment.