Since the day Britain announced their intentions to leave the European Union, the UK and its trading countries continue to remain uncertain about the economic impact of this major political development.
While the rest of the United States remains calm of what the media dubbed ‘Brexit,’ the UK’s long-time trading partner North Carolina is unsure of how this vote could affect the state’s financial industry as well as the long-term effects of it on companies that export goods.
In a 2016 white paper compiled by Bond Dickinson, it reported that NC-based exporting companies supported 164, 023 jobs in 2014. The same data explained that the state exported $30 billion worth of transportation equipment, chemicals, machinery, textiles, and electronics in 2015. Although the state is not among the UK’s top five export markets, its decision to leave the EU is expected to post a negative impact to their flourishing export sector.
“The dollar is reaching historic levels against the pound and against the euro,” said Jeffrey Hay, a managing partner at Womble Carlyle in Charlotte, in an interview with McClatchy DC Bureau “which is going to make – if you look at the real impact on North Carolina companies – it’s going to make our ability to export goods to Europe really difficult.”
“So the impact from the economic point of view, of Brexit, in the short term, I think, is just going to be that the dollar is going to be so strong that it’s going to hurt our export market significantly, and that’s not just U.K.-focused,” he said. “That’s going to be across the board because the dollar is such a safe currency.”
The prolonged uncertainty is predicted to impact investments:
- Stocks of banks and some of the Fortune 500 companies fell sharply
- Banks will be challenged to grow profits due to prolonged low interest rates
- Financial institutions facing revenue and expense challenges
- Investors concerned about their holdings
- Affect companies’ plans for expansions
- Further threatens economic growth
Following the UK Parliament’s passing of the Brexit bill, Britain’s Prime Minister Theresa May has announced her final decision to trigger Article 50 (the EU provision that allows countries to exit the organization) on March 29. Since the process will take two years to execute fully, the UK will be able to officially leave the European Union no later than April 2019.
The most evident effect is the fall of GBP post-Brexit, which several market observers foresee to further suffer losses as the UK triggers Article 50. Market analysts predict the GBP to experience more volatility during the two-year exit process.
“While the market took the news positively as it implied a higher probability of a ‘soft Brexit,’ it’s not yet over and in the long run the pound is likely to trade lower,” said Roger Hallam, chief investment officer for Currency Management at J.P. Morgan Asset Management in his interview with FXCM.
As the GBP’s value plummets, the exchange rate is expected to fluctuate, which will lead to global growth, slow downs and have a major setback on the US economy.
NC economic analysts recommend companies with supply contracts in the UK to identify their ‘risk areas’ to examine their options ahead of time and build business contingency plans before the Brexit negotiation phase.
“They need to look at their supply contracts, for example, to understand what risks those contracts create for their business and what changes they need to be thinking about, you know, to deal with things,” Hay said. “Import tariffs might be applicable to their supply arrangements.”
To relive any apprehensions brought about by Brexit, British International Trade Secretary Liam Fox announced that the UK will open three new trade offices in the US, including in Raleigh. These US cities were chosen due to “their economic productivity and well-established research and development institutions.”
However, the LGBT community is still unhappy with the possible changes brought about by the conservative rule of the BTI, which further affect the uncertain partnership of NC and the UK’s business sectors.