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Brexit – Should I Stay or Should I Go?
2017 will see the Brits take to the polls on the Brexit referendum. A Conservative Party promise, the referendum bill was passed by Parliament last year.
One of the most vocal proponents to exit, Leave.EU, say that Britain’s financial sector have “everything to gain”. Campaign founder, Aaron Banks in a press release in January stated that the UK’s position as a leader in financial services is independent of the EU and leaving would improve its competitiveness especially against cities like Hong Kong and Singapore. [1]
easyMarkets® Director of Risk Management, Nikolas Xenofontos, says “a recent poll of 700 UK based business by the Bertelsmann Foundation[2] found that 80% of companies are pro-staying in the Union with a further 30% saying a Brexit would see a reduction of jobs. I just don’t see the economics supporting a Brexit”.
An age-old debate
The debate on the UK’s continuing participation in the European Union is no new thing. In fact it stretches back to when it first joined the union in 1973.
On one hand you have those in favour of a Brexit arguing that Britain would be in a better position to conduct its own trade negotiations and immigration control outside of Europe. On the other, you have the pro-staying in the Union set saying that leaving Europe would undermine the UK’s economic position and lessen its global influence along with creating trade barriers with the rest of the EU.
Let’s not forget that the UK is not part of the Eurozone, a 19-country currency union that shares the euro, and has always been particularly sensitive to giving up its monetary independence.
Should I stay?
There are a number of reasons those backing the UK to stay in the EU put forward. Currently there is a free flow of workers between European countries. By leaving the EU, not only are UK workers limited in the opportunities they might be able to take up abroad, but UK companies would miss out on employing workers from the rest of Europe. It’s estimated that about 100,000 banking jobs would fall away; not a small number for one of the largest financial hubs worldwide. [3]
A Brexit would also be costly to UK business that benefit from the free trade enjoyed by members of the EU. So while Britain might save billions of pounds in membership fees, it would be outweighed by costs from the newly imposed tariffs.
The EU represents 25% of the Global GDP, giving it formidable economic and financial clout on the world stage. Brexit would see the UK with reduced influence in not only economic but also military sectors. More importantly, Foreign Direct Investment is likely to be compromised which would cost the UK dearly.
Should I go?
The cost of membership to the UK is a staggering 11% of GDP. Money that could be better used towards making the UK a more attractive global finance hub. A Brexit would also restore political sovereignty that currently resides in Brussels. The UK would regain control of some of the more contentious topics including banking regulation and immigration.
Most of the UK’s Small to Medium Enterprises (SMEs) don’t trade with the EU but currently have to abide by EU regulations that impact their ability to freely do business. A Brexit would hand that control back into the hands of these business owners.
Just a song and dance?
The Brexit is proving to be a divisive debate amongst financial analysts and the man on the street. A recent poll of 20,000 voters saw half preferring to leave the EU and 38% wanting to stay. [4] The date of the referendum has yet to be set, though for markets that don’t like uncertainty, clearly the earlier the vote happens, the better.
In the famous words of The Clash – ‘Should I stay or should I go now? If I stay there will be trouble, an’ if I go there will be double’.
[1] Simon Kennedy (January 11, 2016). “’Brexit’ Campaign Says Banks Would Benefit from U.K. Leaving EU.” Bloomberg.
[2] Philip Oltermann (February 14, 2016). “German poll finds one in three firms would leave UK after Brexit.” The Guardian.
[3] Jonathan Prynn (November 27, 2015). “’Brexit’ would lead to loss of 100,000 bank jobs, says City.” Evening Standard.
[4] Kate McCann, Matthew Holehouse and Christopher Hope (December 17, 2015). “Brexit now backed by 47 per cent of British voters, new poll reveals.” The Telegraph.
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