With Prime Minister Theresa May triggering Article 50 last week, formally notifying the European Council of its decision to withdraw from the trading bloc of 28 countries, a group of 70 delegates gathered at One Churchill Place, Canary Wharf, for a breakfast meeting organised by Barclays. Discussion was centred around the topic:
‘While triggering Article 50 might mark the end of an era, it is time for UK businesses to form new relationships with European partners – and the world.’
The delegates gathered to hear from a variety of speakers including Henk Potts, Director of Global Research & Investments for Barclays; Rear Admiral Chris Parry CBE, Managing Director at Merl House and our very own Linda Middleton-Jones, Regional Director of Membership at the Institute.
Whilst the triggering of Article 50 is just the first step towards the UK leaving the EU, with the UK’s negotiations with the EU set to play out over the next two years, Henk Potts explained that the UK has benefitted significantly from EU membership since joining in 1973, not least through the free movement of goods, people and capital.
“The UK was seen as a gateway into the rest of Europe and that has significantly boosted foreign direct investment and economic growth in the past.”
While this is likely to change post-Brexit, the UK financial markets remain incredibly resilient.
“We’ve been through financial crises, depressions, recessions and world wars. Growth is the default setting for the global economy and the UK is no exception.”
Although the UK’s growth prospects haven’t “blown up overnight”, as Potts phrased it, this does not mean there won’t be “bumps” along the way. He expects unemployment growth to begin to rise and domestic consumption to fall.
And while a recession is not forecasted, a slowdown in economic growth is only to be expected as Brexit becomes a reality. Potts predicts 1.5 % growth towards the end of this year and 1.3% heading into 2018.
Rather than waiting to see how negotiations progress, many UK companies are already reacting to Brexit. Some have revised their investment strategies, while others are considering the reallocation of resources elsewhere in the world. And many are excited by the opportunities on offer.
According to Linda Middleton-Jones, UK businesses are demonstrating “a strong energy for growth in our international markets and a desire for a global Britain post-Brexit.” This statement is borne out by the Institute’s latest survey results, polling over 200 members and other exporters, where 97% were optimistic about wider global opportunities going forward.
Interestingly, 93% were also optimistic about opportunities in Europe and Middleton-Jones said that she is “hearing among members that a number of companies are looking to relocate or establish an office in Europe, in order to maintain access to the single market and remain competitive. The next two years is very much about building bridges with Europe and staying close to your customers and suppliers there.”
With HMRC predicting that the 90 million import/export transactions happening in the UK per year now are set to increase to 300 million transactions by the end of the UK’s Brexit negotiations with the EU.
“Companies need to prepare for this by upskilling their staff, especially around customs compliance,” said Middleton-Jones.
It is not just the UK that is undergoing significant political and economic change. Many of the markets where UK companies will be looking to extend their reach are also in a state of flux or evolution.
As Rear Admiral Chris Parry CBE noted: “We are operating in an interdependent, highly competitive and unstable world as a result of clashing capitalisms. We are also seeing the rise of global insurgency by states and individuals who are not happy with the status quo. This is leading to increased terrorism, criminality, cyberattacks and migration.”
As a result of changing geopolitical dynamics, Parry sees the strategic world separating into the Eurasia bloc – Russia and China – and a maritime world that wraps around it – Canada, South Korea, Japan, Australia and New Zealand.
Parry believes that the close ties that have developed between Russia and China are potentially problematic for the UK post-Brexit, given the new land and maritime silk roads being built under China’s ‘One Belt, One Road’ initiative.
“Through their manoeuvring, Russia and China are effectively staking a claim on many of the markets that we might want to head into after Brexit,” he noted.
Ultimately, it is difficult to know where global economies and politics are heading, or what roadblocks will arise along the way.
But as Henk Potts stated, “businesses are far more practical than politicians anyway. They always find ways around the hurdles. They enter new markets, they innovate,
they stay close to their customers and suppliers. Regardless of what happens, we’ll still be interacting with the rest of the world, and UK businesses will continue to make it happen.”
You can read the full report from the breakfast meeting here.