Voters have answered the big question of whether the UK’s future should be inside or outside the European Union. But the trickier questions are coming thick and fast – what does this mean, what happens now and how is the exit process going to be managed?
With only a few hours since the Electoral Commission confirmed the outcome, we have, at best, only partial answers to some of these questions.
What does this mean?
Today….Right now, the markets have reacted violently to the decision with Sterling chalking up its biggest ever fall against the dollar, share prices dropping sharply in early trading (and not just in the UK) and safe haven assets such as gold soaring. Never have I seen the word mayhem appear so many times in my twitter feed.
This volatility won’t last forever. Bank of England governor, Mark Carney, has already stepped in to calm markets with reassurances that contingency plans are in place and the Bank is ready to take action to ensure monetary and financial stability. However, he also reiterated the Bank’s previous statements that Brexit posed the most significant risk to the UK economy.
In the coming months….Despite the lack of concrete signs in the data that referendum-related uncertainty was having a materially negative impact on the real economy up to now, this could change if companies rethink investment and hiring plans, consumers pull back and exchange rate movements push up inflation. None of this will be evident immediately and talk of recession is premature, but a flurry of downward revisions to UK growth prospects this year is imminent.
Longer term……Earlier this week I blogged on how independent forecasters thought manufacturing might be impacted by a vote to leave the EU and it didn’t make for cheery reading. There are clearly some longer-term risks to trade, investment and productivity in the manufacturing sector from this decision. But my glass is half-full when looking at the sector’s prospects. It’s not been that long since the last time manufacturers had to deal with a massive period of uncertainty and the sector came out the other side with investment, innovation and jobs all recovering. We can do this again. But how quickly and effectively this happens depends on what politicians do next….
What happens now?
The Prime Minister has confirmed that Article 50 (the mechanism for leaving) will not be triggered immediately. An important decision, which we believe businesses will welcome. That means that rules and regulations relating to trade, migration and employment will remain the same.
But businesses will need some clarity on negotiation priorities in relatively short order. We’ve set out what we think are the most important areas in the short term. These include:
- Maintaining tariff free access to the EU market for goods and services
- Ensuring regulatory stability
- Continue to address the UK skills gap
- Further focus on an integrated domestic policy to support investment, competitiveness and export performance
You can read more about the detail of these recommendations in our new report, here.
But the policy focus can’t just be about our future dealings with Brussels. If we want to anchor critical manufacturing investment in the UK we also need government to show determination through its domestic actions, using the tax system if necessary to bring forward investment in productivity-enhancing machinery and innovation as part of an ambitious industrial strategy. We must not let this referendum outcome stall manufacturers’ progress on the fourth industrial revolution.
How will the exit process be managed?
This is one question we don’t have the answer to. Significant political change is on the cards. But businesses will need to work constructively with a new ‘captain’ to ensure that we get the best outcome for UK industry in a new relationship with the EU. EEF will be part of this process.
We’ll continue to blog on developments as they emerge in the coming days and weeks. And we’ll continue to champion the right policies to support our vibrant and globally-focussed manufacturing sector. You can sign up to receive EEF's Weekly Intelligence Briefing to keep up to date on developments.