Brexit - What accountants need to know
No one will easily forget that fateful morning when the referendum results were announced. The reaction that followed was one of collective panic by financial experts and the public at large who voted to remain within the EU. But now that the hype has calmed down somewhat, economists are reevaluating the severity of the financial storm that was predicted to hit Britain. Here, we take a closer look at the short term impact of the referendum results on the nation’s economy, and what the long term implications may be thereafter.
Economic experts maintain that immediate aftermath is positive
In the weeks leading up to, and following the referendum, a broad range of economic experts predicted that there would be dark days ahead should Britain leave the EU. It was widely believed that share prices would crash, the government would have difficulty selling local bonds, and the United Kingdom would plummet into another nightmare of a recession. Now that the dust has settled somewhat, economists have stepped back and evaluated the bigger picture, and the good news is that, contrary to popular belief, there are certain factors associated with the British economy that are seeing improvements since the vote to leave the European Union.
Larry Elliott, The Guardian's economics editor, believes that in many respects the referendum has prompted the government and financial institutions in the United Kingdom to up their game in terms of ensuring that the predicted negative side effects of Brexit do not come to fruition.
In a recent article, he writes, “It has forced the government to take a long, hard look at the British economy – something that would not have happened without the shock administered by the referendum. It’s brought home the fact that most of Britain feels disconnected from the economic story peddled by successive governments."
Chris Conway, Managing Director at Accounts and Legal, is also optimistic about the immediate aftermath of the referendum. “As time has passed, post-referendum views have adapted to the realisation that life will go on. The UK is too big an economy to be benched.”
He is also seeing customers react positively to an impending Brexit by proactively seeking and creating business prospects for themselves, and this in turn has had a positive impact on his practice.
“Our clients are sufficiently entrepreneurial that they predominantly see Brexit as an opportunity, particularly those with any overseas influence. Furthermore, we are still seeing an appetite from new entrepreneurs to start their own businesses, even volatile sectors such as real estate. This obviously has a positive knock on effect for accountants.”
What the statistics say
So we’ve had a word with the experts, but let’s analyse the evidence below:
- UK retail sales have soared in July, despite the uncertainty caused by the Brexit vote. Retail sales jumped by 1.4% month-on-month, smashing expectations of a rise of just 0.1% to 0.2%. If you strip out fuel sales, retail sales were 1.5% higher. And on an annual basis, retail sales were almost 6% higher than in July 2015.
- The pound has jumped by over one cent against the US dollar to $1.3154, a two week-high, It’s also up 0.8 eurocents at €1.1631, bouncing back from a three-year low.
But hold up, don’t get too excited just yet!
Although some financial institutions are optimistic about how the UK’s financial market has faired in the short term, there are others who remain sceptical about whether or not such improvements can be maintained in the long term. In an economic brief to clients, Lloyds Bank states that until additional hard data allows the prospective growth deceleration to be gauged, the long-term outlook remains uncertain. They also predict a 1.28 drop in the Pound to Dollar exchange rate the end of 2016, while the Pound to Euro exchange rate is predicted to trade at 1.19 by the end of the year.
“Britain has deep structural economic problems that would have to be addressed inside or outside the EU,” Elliot writes. “Investment has been weak, productivity has flat lined since the recession, earnings growth is running at half its 4-5 percent pre-financial crisis level and, except in times of war, the balance of payments deficit has never been higher. Brexit could make some of these challenges more acute,” he cautions.
With the drop in the value of the pound set to push up inflation by making imports more expensive, consumer spending power is likely to feel the strain as time progresses. “While I don’t expect a big run of businesses moving their headquarters offshore as a result of Brexit, much depends on the what kind of deal is made between the UK government and the EU,” says Conway.
Although he is optimistic that London will continue to be the foremost financial hub in the world, he maintains that access to the EEA will be the critical factor in retaining businesses in the UK. “If access isn’t granted - although I expect it will be - then the impact on financial services could be more extensive,” he says.
How accountants can stay ahead of the game!
While there is still uncertainty regarding the implications of Brexit on the UK’s economy, there are steps that can be taken to ensure that professionals in Accountancy & Finance weather any storms that may come their way as a result of Britain’s decision to leave the EU. Conway offers his top three tips:
- Stay as up to date with any developments: If you are a trusted finance advisor to your clients, they are likely to ask for your opinion. So your knowledge of the current situation will be vital.
- Maintain your core skills: There will always be a requirement for good generalist accountants, and you will decrease the risk of becoming obsolete.
- Be flexible: Depending on what happens, clients might make different demands of you, so being accommodating will win you significant goodwill and cement relationships for the long term.
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