The pound has dropped 10%. The FTSE fell by 500 points. Worse still, the Bank of England has issued a statement trying to bring some calm to the markets.
These are the immediate consequences of the British public roundly voting to leave the European Union. The much-feared ‘Brexit’ that analysts have worried over for months, defied the ’experts’ and will ultimately see Britain leave the EU.
Global markets though are also reeling in shock
The Nikkei has fallen to its weakest point since 2014. The price of crude has dropped by 6%. Most other key bourses are down: Australia, Korea and Singapore all report losses.
The immediate effects of the fallout from Brexit will be felt in the financial markets. But it won’t be long before the broader economy is contaminated with uncertainty. As Sophie Dyer wrote yesterday, the unstable future is likely to create new costs for business. In our latest risk report, no surveyed company was seriously worried about the effect of Britain leaving the EU. It seems they, and many other organisations, have been caught out.
The Prime Minister has resigned, vowing to leave in October. David Cameron has left his successor to activate article 50, that starts the two-year cycle to formally eject the UK from the EU. During this period, the continual uncertainty will undeniably dull economic activity. In the longer term, the UK has potentially resigned itself to lower growth, inflationary pressures and the prospects of capital flight.
Beyond the troubled British shores, years of debate, uncertainty and introspection will consume European public policy. Immediately, analysts will ask who is next? Italy? Denmark? The Netherlands?
Although the referendum was designed to resolve the uncertainty within the UK, it has only served to amplify ambiguity for businesses in Europe. Countries that were once keen proponents of continental togetherness are now fuelling centrifugal forces as a wave of nationalism galvanises EU politics.
Unfortunately, the discussion across the continent (and noticeably within the British referendum) has grown toxic. Received opinion almost invariably critiques the EU. It is a truism that the union is inefficient, over-regulated and ineffectual. The opposite case is never made, and so it is never considered. Given that this distant trans-national body is far from most people’s concerns, it seems unlikely that any politician is going to win votes by being pro-EU in the immediate future.
Eurosceptism will continue to erode the integrity of the EU for the foreseeable future and consequently, the economic order that it brought will begin to slacken for businesses across the continent.
A deeper issue relates to the fabric of Western democracy. Frank Fields, a prominent UK MP, has described Brexit as a working class “revolt against globalisation”. Unleashing this angry force onto the political debate will have untold ramifications.
It seems that the structures that have framed economies within the West is undergoing an intense examination. It is likely that the Europe of the future will be subject to radical constitutional changes, economic disorder and regulatory risk. Ironically, the impulse to remove unnecessary red tape, may entangle businesses in a greater number of regulations as they trade between increasingly disparate countries within Europe.
In terms of the day-to-day management of business, the prospect for managers has become cloudier. The number of orders made is likely to drop and we may see increasing number of suppliers facing cash flow or other trading issues. The regulatory environment will become more unstable. The economic sentiment of most economies will grow more pessimistic.
It’s probably not best to panic quite yet though. You may need to reserve you emotional energies for greater anxieties for the economic disorders that are yet to come.
This article is a piece of independent writing by a member of Procurement Leaders’ content team.