Vote to leave the EU impacting on the UK economy – Implications for Wire and Cable marketPosted On: 14-07-2016 By: Grahame Turnbull
By Louisa Winnik – Wire and Cable Analyst
In just a few short weeks since the UK held a referendum on whether the UK (United Kingdom of Great Britain and Northern Ireland) should remain or leave the European Union (EU), we now also have a new Prime Minister as David Cameron resigned in the face of the vote to leave. The new Conservative party leader, Theresa May, is only the second female PM in British history.
While the UK was never part of either the Schengen agreement or the Eurozone, it has cut the final connection to the Union. The markets reacted quickly, with the UK£ falling to below US$1.30 (a 31 year low) with commentary from HSBC, Deutsche Bank and Goldman Sachs indicating they think it has further to fall.
The FTSE 100 fell sharply following the vote, but has since rallied. However, the FTSE 250 index, more domestically focused than the FTSE 100, remains down following the drop immediately after the referendum and is yet to recover. A period of uncertainty remains as it is still unclear when Theresa May, the new leader of the Conservative Party who will be sworn in as Prime Minister this week, will trigger Article 50. Once it is triggered, there is a two-year period for discussions to take place and then the UK’s membership in the EU will automatically expire. The timeline for exit is far from clear. Bank of England officials are expected to cut interest rates to zero in the next week to help stabilise the market, but as the current government has given no indication as to what our future relationship might be with Europe we will have to wait and see.
Campaigns for the vote to leave vowed for greater control of immigration, the end of “red tape” regulation from the EU and improved trading outside of the region. It appears each of these are more likely to be met with some compromise. The withdrawal of free movement of people would in all probability restrict access to the single market – the Norwegian and Swiss models of EU association accept the principle of EU free movement as the “price” to gain liberal access to the single market. Similarly, the UK will be unable to retain absolute control over regulations while enjoying the same unfettered access to EU markets as other EU member states. Lastly, renegotiation of trade agreements is likely to be a long and complex process, something which for 40 years the UK has left to the EU. The trade agreements in place are only legal while the UK remains in the EU and it is likely to have to renegotiate deals.
What does this mean for Integer and the wire & cable market? As the OECD has delayed the publication of its statistics, claiming it needs more time to calculate the economic impact of Brexit, we cannot claim to offer all the answers. However, there are a few key things to note. Firstly, UK manufacturing has been in decline for 20 years and a step away from the single market is unlikely to reverse this overall trend. Secondly, the UK was the fifth largest economy in the world, but is now in sixth place behind France following the vote. This will undoubtedly diminish the UK’s spending power – at least in the short term. Finally, although the UK is a major importer of cable from the EU, the leading suppliers of cable into the UK came from Turkey and China in 2015 and this is likely to continue. The new relationship between the UK and Europe is yet to emerge, and we will be watching closely for the fallout.
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