The Impact of Brexit Across UK Sectors

Brexit could reduce UK GDP by 0.5% a year. In the next 15 years, it could decrease by more than 7%, estimates CEEMET, the Council of European Employers of the Metal, Engineering and Technology-based industries. The estimate is based on an analysis of how trade barriers could reduce foreign investment and competition in the industrial sector. Further research on the financial and services sector might show that the growth rates might be even lower, economist Frederic Gonand notes in the report. Reuters comments that this is one of the most pessimistic Brexit impact forecasts. For comparison: Open Europe and Ciuriak Consulting predict that even in the worst case scenario UK GDP in 2030 would not go lower than -2.2%.

The in-out EU referendum has been scheduled for June 23, 2016. As the date is approaching, more attention is being paid to the impact of Brexit across UK sectors.

The financial sector

Sam Hill, Senior Economist at RBC Capital Markets, an investment bank, thinks that it is still too early to say what financial consequences Brexit could have for the UK. If it could access the EU market on the same terms as Norway can, nothing would change much. However, some financial firms could still decide to move to mainland Europe. Ranjeet Sandhu, Director of London Stone Securities, a stockbroking firm, estimates that regulatory changes would push 4–7% of ‘euro-denominated businesses’ out of the country. London’s financial sector would face some temporary difficulties, but the city would still attract international firms, he notes. Vicky Redwood, Chief UK Economist at Capital Economics, an economic research consultancy, stresses that London would actually strengthen its competitive advantage: “An EU exit would enable the U.K. to broker trade deals with emerging markets that could pay dividends for the financial services sector in the long run.”

“If we left the single market, I think it would be disastrous for the City,” says Gerry Grimstone, Chairman of TheCityUK, Britain’s main financial sector lobby group. He also mentions that financial firms have already started looking for some alternative locations and preparing their exit plans. TheCityUK has proposed 25 EU reforms to keep Britain inside the EU. They are aiming to improve EU regulations and create a capital markets union (CMU). Their implementation would bring around £110 billion to the UK.

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The manufacturing sector

A poll by The Engineer magazine shows that 34% of UK manufacturers believe that Brexit would remove some restrictive regulations. 28% think that the UK would lose jobs if manufacturers decided to move their operations offshore.

Alan Johnson, a Labour MP, warns that Brexit could cost the British manufacturing sector about 50,000 jobs. It could also jeopardize two thirds – i.e. over one and a half million – of manufacturing jobs and around 50,000 apprenticeships which depend on Britain’s membership of the EU.

Graeme Macdonald, CEO of JCB, a producer of construction equipment, claims that Brexit would not affect UK trade: “There has been far too much scaremongering about things like jobs. I don’t think we or Brussels will put up trade barriers.”

A GfK poll commissioned by the Engineering Employers’ Federation (EEF) reveals that 61% of its members are against Brexit. “Our findings reinforce the fact that companies, particularly those interested in exporting, do not see the point of the UK cutting itself off from its major market,” says Terry Scuoler, Chief Executive of the EEF.

The property sector

A poll by property consultancy Carter Jonas shows that 65% of property experts think that Brexit would deter investment in British property. However, only 10% would consider moving their businesses to another EU member state. 22% believe that Brexit would not affect investment at all, while 13% expect some positive outcome.

Stephen Williams, Equity Analyst at Brewin Dolphin, an investment management firm, claims that Brexit is not a serious threat to British residential property. “As far as domestic supply and demand are concerned, I’d say there aren’t that many major risks, other than if interest rates go up faster, or more than currently expected,” he explains.

Richard Donnell, Research and Insight Director of Hometrack, a residential property analytics firm, presents 2 possible scenarios of the impact of Brexit on UK housing. Most likely it would not change anything as he cannot see any difference in income growth – the main indicator of the market condition – in a long-term perspective. However, if the government decided to address a shortage of housing, it might face difficulties in attracting investment. Investors might consider the UK market too risky. Securing enough investment might become especially challenging in London because 49% of investors in central London property are foreigners, as estate agent Knight Frank estimates.

The scotch whisky sector

Scotch whisky is Britain’s largest food and drink export with an annual turnover of more than £4 billion ($5.8 billion). Scotch distillers are concerned that Brexit could severely harm their businesses. They foresee 2 risks: (1) difficulties in accessing the EU market and (2) increased product prices in emerging markets as the EU tariff deals would no longer apply. “You’re better off in free trade agreements if you’ve got more clout, and the EU brings more clout to the table,” says Ivan Menezes, CEO of Diageo, which exports two-thirds of its scotch production to developing countries.

There is a lot of anxiety about the future of scotch exports to India. It imposes 150% duties on the import of alcohol products. It is one of the highest tax rates in the world. The Scotch Whisky Association has backed the EU in negotiations with the Indian government for reducing scotch import taxes. David Frost, CEO of the association, thinks that all efforts might be in vain in the event of Brexit.

The travel sector

British airlines are worried that Brexit would cut them off from the European Common Aviation Area (ECAA). The UK would need to negotiate a new agreement. In the meantime, airlines would need to increase flight prices to cover extra costs. Flying would be again “reserved for the elite”, observes Carolyn McCall, Chief Executive of easyJet. “The EU has brought huge benefits for UK travellers and businesses. Staying in the EU will ensure that they, and all of us, continue to receive them. How much you pay for your holiday really does depend on how much influence Britain has in Europe,” she argues.

Peter Long, a former Chief Executive of TUI Group, a multinational travel and tourism company, claims that the UK needs to closely co-operate with other EU states to ensure protection of holidaymakers’ interests. He warns that Brexit could decrease the value of the pound, which in turn would make travelling less affordable.

References:  [1] Neil Hall, Reuters / [2] Open Europe and Ciuriak Consulting / [3] Mark Hanrahan, International Business Times / [4] Huw Jones, Reuters / [5] Jason Ford, The Engineer / [6] Ian Silvera, International Business Times / [7] AFP via Business Insider / [8] Carter Jonas / [9] Shane Croucher, International Business Times / [10] Thomas Buckley and Matthew Campbell, Bloomberg / [11] Natalie Paris, The Telegraph / [12] The Irish Times / [13] Tim Shipman and Peter Evans, The Sunday Times