It’s official (almost), the wheels have been set in motion to trigger Article 50 and start the process of taking the UK out of the EU. Understandably, there has been a great deal of media coverage about what this will all mean and while, on the one hand, the future is anybody’s guess, on the other, when trying to determine what will happen, it’s often helpful to look at the fundamentals.
Fundamental 1 – London is a property market apart
London is home to the city, which has been quite open about its concerns regarding leaving the EU. Other European cities have also been quite open about their desire to lure businesses away from their London bases. There are, however, a number of reason to refrain from panicking about a property crash in London, for example:
1 – While it would probably be painful for the city to lose access to the European market, it has global reach so it is highly doubtful that the blow would be terminal.
2 – Even though London and the city are often spoken of as though they were one and the same, in actual fact there is far more to London than the city. The creative industries are one obvious example of this, as is the fact that many digital technology and other “disruptive” companies, have chosen to make London their base. These cover a broad scale from industry giants such as Apple, to niche start-ups. In principle, these companies could be lured away by other cities with equivalent infrastructure and continued access to the single market, however in practice there are a number of reasons why they should stay put.
3 – The UK has a very flexible labour market including a thriving freelance economy, which is great news for companies who need to get work completed but want to avoid the commitment of taking on employees (at least until they have a clearer idea of where they stand). It also tends to be at least relatively accommodating of disruptive business models. Paris, by contrast, has been locked in a battle with tech giant Amazon, which is unlikely to have passed unnoticed by any technology companies who may have been approached about moving there.
Fundamental 2 – The UK is an attractive export market for other countries
While some pundits have speculated that certain EU members may be prepared to sacrifice their own export potential in order to make an example of the UK and deter other countries from leaving the bloc, it’s a wide open question as to whether this would be a feasible ploy in real-world conditions. In simple terms, such an approach carries the risk of causing job losses and this may go down badly with the (voting) public. Even if such a scenario did occur, it is highly likely that other countries would look to fill the gap, which would create reciprocal export opportunities for the UK. This is important for the post-Brexit outlook of regional economies which are based on agriculture and/or manufacturing.
Fundamental 3 – Long-term value will always attract investors
While the weakening of the pound makes it more expensive to import raw materials, it also means that anything priced in sterling becomes more affordable in real terms to international buyers. This includes finished goods (for export), shares in UK-based companies and, of course, property. The fall in the value of sterling could, therefore, help to provide a short-term boost to the UK economy during and after the Brexit process. Over the long term, it is a reasonable expectation that as the UK economy stabilises, the value of sterling will rise again until it is, eventually, back to its pre-Brexit levels.