Brexit: What Now?
The referendum on British membership of the EU ended in an unexpected victory for the “Leave” camp. This has prompted Prime Minister David Cameron to resign, the pound to fall to its lowest level against the US dollar in 30 years, and stock markets around the globe to crash. Although it is too early to assess the full impact of the decision, companies doing business with the UK should brace themselves for an open-ended period of uncertainty.
While we expect that stock markets and the pound will recover some of their immediate losses in the coming weeks and months, the uncertainty surrounding the UK’s future relations with the EU (its most important trading partner) has led Dun & Bradstreet to downgrade the UK’s country risk rating from DB2a previously (on a par with the US) to DB2c, with a “deteriorating” outlook.
Stock markets had rallied in the days before the referendum (when the Leave camp lost its lead in the polls), and the pound had appreciated against the US dollar for similar reasons. However, the FTSE 100 lost 7.4% immediately after the referendum result emerged (the FTSE 250 dropped by 11.7%), while the pound fell to its lowest value against the dollar in more than 30 years.
The biggest question mark at the moment is over when the British government invokes Article 50 of the EU Treaty and starts the countdown for leaving the EU. Once activated, Article 50 is a one-way street towards exit: Exactly two years after its invocation, EU law would cease to apply in the UK — unless all 28 member states agreed to extend the deadline.
The referendum result in Scotland creates concerns regarding a renewed push for Scottish independence. Given the caveats (such as the requirement to adopt the euro if ever admitted to the EU as an independent state and the current low oil price), the road to Scottish independence would not be an easy one, despite indications from Scotland’s devolved government that it will look into this option again.
In Northern Ireland, Brexit could have far-reaching consequences on the peace agreement between loyalist (pro-British) Protestants and separatist Catholics, as well as on the economy (which is heavily linked to that of the neighbouring Republic of Ireland — an EU member). The peace agreement signed by the two groups in the late 1990s is based on EU law, and any attempt to renegotiate the status quo would prompt fierce opposition from the Catholic side.