Just What Will the Impact of Article 50 Be?

Now the dust has settled (a bit!) on the Tory party conference, I wanted to share my thoughts on Prime Minister Theresa May’s announcement that Article 50 would be invoked no later than the end of March 2017.

The pound has already reacted to the news, losing value against the dollar and the euro, making it more expensive for Britons to holiday abroad. It also means it has become more expensive to import goods into the UK as the pound is now worth less than it was. But, UK-based manufacturers should benefit as a weaker pound makes it cheaper for overseas businesses to buy UK-made goods, which will hopefully mean more profits for UK exporters if foreign importers choose to buy more.

So far, so mixed.

But, what about in the first quarter of 2017, those final months before the UK formally begins negotiations to leave the European Union. What will happen then? No one has a crystal ball so it’s difficult to say. But, I suspect it won’t be the UK’s strongest period.

And, I’m not alone in my view. A number of economists and bodies have already said they expect business investment decisions – many of which have already been delayed due to the initial Brexit vote – to be put on hold indefinitely, cancelled or drastically reduced. That’s because, despite a ‘no-later-than’ date being given to invoking Article 50, uncertainty over what the UK will negotiate for and what the EU will want, still remains and will do until both sides show their hands.
Unemployment could rise as soon as the first quarter of next year as business investment slows or even falls this year.

As for the housing market, the potential impact there is as clear as for everything else where Brexit is concerned – as mud!

But, the Government do seem to be taking the housing crisis seriously, at last, and £5 million of investment into building and construction innovations is not to be sniffed at. But, with profit at the heart of most landowners’ and construction companies plans, worries over demand could delay the delivery of 1 million new homes – high demand tends to translate into higher prices after all, low demand not so much – no matter what the Government does.

On the bright side, putting a date by which negotiations will begin does suggest that come the end of 2019, some agreements and arrangements should be (almost) in place, between the UK and the EU. That, in turn, should give businesses a better idea of what sort of playing field they’re on and they can make their decisions accordingly; less uncertainty over the UK’s relationship with the EU should spell less uncertainty over investment.

My overall view is that uncertainty will remain the watchword until sometime towards the end of 2018. At that point there should be some indication of what the UK wants, what the EU wants and if there’s any way for them to reach a satisfactory agreement.

Between now and then, however, I think it’s going to be a bumpy road and the first quarter of 2017 could be among the biggest.

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