A New Day for the United Kingdom—and
Impacts across Global Supply Chains
In June 2016, the citizens of the United Kingdom voted to leave the European Union. Politicians are panicking and there are battles being fought for control in the main political parties. Some of the changes expected from a Brexit (i.e. British Exit) vote have already happened. A week from the referendum, the pound was down 10 percent against the US dollar and eight percent against the Euro. The UK Chancellor has said there are “clear signs” of a shock to the economy, and the Governor of the Bank of England is talking of a need for fresh stimulus measures. Forecasts for economic growth are being revised downwards for the UK, Europe and the rest of the world.
To start the withdrawal process the UK has to invoke Article 50 of the Lisbon Treaty, which triggers a two-year period of negotiation on the exit terms. Depending on the actions of the new Prime Minister, Brexit may not occur until 2019. This gives supply chain professionals plenty of time to consider the alternatives. The only problem is that we don’t know what the outcome of the negotiations will be, so the next couple of years will need to be spent considering different scenarios.
A two-and-a-half year delay could lead to paralysis and stagnation for European companies as business confidence, then consumer confidence, worsens. Questions are coming up about future trade agreements with China and India that could affect the international flow of goods. As the second largest economy in Europe, the UK could still be an attractive base for global companies, and the fall in Sterling could make purchasing assets in the UK a lower cost to companies looking to enter Europe.