Thursday the people of Great Britain voted, in a small majority to leave the European Union. The European Union or EU was established in 1999 between 19 European nations. It has grown to 28 nations until the departure of Great Britain. The Union was established to share a common currency (although not all members adopted the Euro), share common laws, establish free trade and free movement across member borders.
Some Brits felt that the Union imposed unnecessary regulations, hurt the British economy and jobs and weakened British nationalism. They voted to restore Great Britain as sovereign nation, separate from the Union.
No one knows what the long-term results of the succession will be. Great Britain has the fifth largest economy in the world and was a leader within the Union which was the second largest economy in the world, behind the United States.
In the short-term, the Brexit has caused uncertainty across the world and shaken economic markets. European stock markets lost 8% to 10% on Friday. The U.S. Dow Jones Industrials lost 610 points, or 3.4% of its value on Friday. For anyone with a 401k, this means they took a hit. It’s uncertain if the U.S. stock market will rebound from this loss.
Another near term result will be the ability of Great Britain to trade with other EU nations. As a member of the EU there were no restrictions to trade between member nations. Leaving the EU means Great Britain will now need to negotiate trade agreements with the EU. The EU has good reason to make these trade agreements difficult for Great Britain. If the EU negotiates unfavorable trade agreements with Great Britain it is a deterrent to other EU nations to consider leaving the EU like Great Britain. It is likely Great Britain will have more difficulty selling goods to EU nations. The EU will structure trade agreements that make Great Britain’s goods more expensive than other EU nations. Great Britain will also need to negotiate trade agreements with other world nations as they now are part of the EU agreements. This may hurt the British economy through decreased exports.
This could impact Ebsco through our customers in Great Britain. If they see a decrease in their sales, through decreased exports, that means they will need less springs from Ebsco.
The initial impact from Great Britain’s exit from the EU caused the British Pound to fall to its lowest level in thirty years on Friday. The pound has been declining over the past months due to the uncertainty of the upcoming vote. This could help with British exports as foreign currency can buy more goods with currency exchanges. It hurts the British economy over imports. Everything imported will cost more British Pounds. Being an island nation, Great Britain is forced to import many goods. They lack many raw materials needed to run their economy.
This could impact Ebsco. Our British customers will now pay 10% more for the same parts due to the currency exchange. The same part bought from a British Supplier will be 10% less in price.
The departure from the EU will also impact travel in and out of Great Britain. As part of the EU, member nations do not restrict travel across borders. It is no different than Americans traveling from state to state. As a sovereign nation, Great Britain will need to negotiate border security with other EU nations. Brits may not be able to travel freely to other EU countries. In light of the current world-wide terrorism this will be a plus for Great Britain. They will be able to determine their own requirements for entry into their country. They will control their own borders.
This should not have any impact on Ebsco.
Great Britain’s exit from the EU may have an initial impact on our sales to British customers. The weak pound will mean increased prices on all US goods to the UK. Although trade agreements between the UK and the US should be favorable to both countries, they will need to be negotiated and could have an impact on costs and delivery times.
The US and UK have been the closes of allies for many years. I do not anticipate any long-term impacts on trade between our two countries. At Ebsco, will continue to rely on our quality and relationships with our UK customers to get us through the initial impact of this development and monitor things closely for the future.
God Save the Queen.