Brexit – where are we now?

Introduction

By the early hours of Friday 24 June, it was clear that history was about to be made and that the bookies had, in fact, got it wrong with the British public deciding to end the UK's 41-year membership of the EU. There were many reasons cited as fundamental to the decision that can probably be reduced to couple of main (perceived or otherwise) issues: disenfranchisement and a dislike for the apparent lack of democracy and independence created by the governing power of the EU.

The percentage margin makes it look like a far closer call than the reality with the facts speaking for themselves - some 17.4 million voters, (52% - a majority of 1.25 million) in favour of leaving the EU. Given these numbers it seems extremely unlikely that the vote will be put back to the people or indeed that Parliament will seek to ignore the views of the electorate. 

Ireland’s focus

Ireland’s focus should be on the reality that Britain has decided to exit the EU and how our future as their closest neighbour, biggest trading partner and intertwined history will be shaped due to their decision to sever ties with the EU.

The new Prime Minister, Theresa May has indicated that Brexit means Brexit. Ireland has a unique and historical relationship with the UK and it will feel the biggest impact amongst the remaining EU members with the most immediate concerns being trade, free movement of people and the position of Northern Ireland. The Irish Government have made it clear that Ireland’s intention is to preserve our close ties and relationship with the UK in so far as is possible.    

Referendum aftermath

Before the result of the referendum was even two weeks old, it felt as though the reverberations of the decision were only just beginning.

British politics imploded with two of the most prominent and vocal “Leave” advocates stepping down; the Prime Minister resigned; sterling plummeted to lows not seen for thirty one years; billions were wiped off UK pensions and stock markets; pre-referendum promises were retracted; there have been marches for another vote as well as a petition signed by 4.5 million people for a re-run; noises that the stability of the Northern Irish peace process may be called into question and echoes of Scotland’s politicians calling for another referendum to split from the UK. 

The ultimate effect of Brexit will remain unknown until alternative arrangements have been negotiated. In the interim, contingency planning is made difficult in the absence of any clarity around the timescale or precise arrangements for the UK’s exit from the EU or what the new relationship between the UK and EU will be (if any). 

Exit process

As of yet, no formal exit notification (as required under Article 50 of the Treaty of the EU) has been made by the UK and the new Prime Minister has indicated that no negotiations will commence until early 2017.

The UK political arena has been somewhat tumultuous and ever-changing in the weeks following Brexit and as of Wednesday 13 July, Theresa May stepped up as new Prime Minister. Until a cabinet reshuffle is complete and there is clarity as to who will be sitting at the table to lead negotiations with the EU, it remains unknown as to when the commencement of the formal exit process will take place but as noted above, the new Prime Minister indicating it is not likely until early 2017. 

The cabinet reshuffle in the UK is well underway with announcements coming in every few hours. David Davis has been appointed to the new cabinet position of secretary of state for exiting the European Union - or "Brexit secretary". Details about the new Brexit department are still emerging, but it is likely to take the lead in negotiating the UK's departure from the EU. Boris Johnson succeeds Philip Hammond at the Foreign Office who has been named Chancellor of the Exchequer.

It should be remembered that until the withdrawal agreement comes into force the UK remains a full EU Member with all the existing rights, privileges and obligations that that entails. The UK will formally leave the EU on the day the withdrawal agreement enters into force or two years from the date of submission of the Article 50 exit notification. Until such time, there is no change the U.K.’s membership of the EU including to the free flow of people, goods and services between Ireland and the UK. 

Where are we now?

In the immediate future there will be turbulent times as the uncertainty leads to volatile markets and currency fluctuations. The UK currency plummeted to a 31-year low post-Brexit against the dollar and to a rate of GBP£1 = €1.19. It rebounded slightly against the euro in the first week, to around €1.21, but has been dropping on an incremental basis since with some commentators suggesting that it will continue fluctuating for the foreseeable future.

As sterling falls, the cost of Irish goods and services to UK consumers goes up - so they buy less making Irish exports less competitive with the likely consequence of any exchange risk being pushed onto Irish companies. This causes obvious challenges for Irish exporters to the UK market. Irish retailers that have pre-purchased stock in sterling are also prevented from benefitting from the weakening sterling currency. Some Irish wholesale food groups have already starting passing on such price reductions to Irish producers and/or farmers.

In general where economic confidence takes a hit, coupled with uncertainty, it affects the decisions of retailers, manufacturers and all involved in the supply chain in-between. The property market takes a nosedive as indecision and hesitancy take a hold with this fed through to property development and construction. Mergers and acquisitions activity slows. The longer the exit and negotiation process takes, the longer the market volatility continues, the longer there is a difficult trading and investment environment. We have already seen UK property funds suspend trading due to high numbers of requests from investors to cash out.  

In broad terms a weaker sterling hurts Irish businesses, market activity, investment decisions, exchequer returns and job creation.

We are living through a significant moment in history and certainly the most important time in the EU since its inception. It is only when the dust settles on the initial shock and the political situation in the UK is formalised that the real negotiations will begin to determine the future of Britain and its relationship with the EU and we will know what the true implications of Brexit are in economic, cultural and social terms.