On the 23rd of June 2016, the United Kingdom had a national referendum on whether or not to remain or leave the European Union. How will this affect your e-commerce business?
The result of this referendum (51.9% Leave vs 48.1% Remain) was only advisory - rather than binding - and therefore nothing has legally changed until the Prime Minister invokes “Article 50” of the Lisbon Treaty. Once triggered this starts a 2 year clock ticking for a member state (ie UK) to formally leave the European Union. Former PM David Cameron chose not to invoke Article 50 in his resignation speech in the immediate aftermath of the results and that action has been left to the new PM, Theresa May. The exact timing of when Article 50 will be triggered remains unclear, but most experts expect it to occur within the next 6 - 12 months, meaning the UK will likely have exited the European Union by the end of 2018.
In fact, this vague timetable is just one of many uncertainties that Brexit poses for UK businesses. Crucially there also remains minimal clarity on what form any future EU-UK trading relationship will take. Assessing the impact for e-commerce businesses is therefore plagued by uncertainty, but the following advantages and disadvantages are likely to crystallise over the coming months and years.
Good for business
- International exporters benefit from sharp drop in the pound sterling vs both the US dollar and the Euro, which make UK exports cheaper to the rest of the world.
- Outside the EU the UK will have increased freedom to enter into bilateral trade agreements with other nations, offering access to a wider international market at competitive terms.
- Following the Bank of England recent statements, the interest rates that high street banks lend at are likely to get cheaper reducing a key cost for businesses.
Bad for business
- Unusual high levels of uncertainty likely to reduce appetite for investment in fixed (i.e. machinery) and human (i.e. employees) assets in short and medium term.
- Drop in economic confidence likely to reduce UK consumers appetite to spend, reducing demand for products.
- Companies that import materials for manufacturing will face increased prices now that the pound is weaker.
- Weaker currency and lower interest rates (as above) are likely to increase inflation in medium term which further reduces capacity for UK consumers to spend.
- If UK domestic economy continues to deteriorate then bank lending to businesses is likely to either reduce or become more expensive due to credit risks. This will reduce lending to new businesses and increase the risk of default in existing businesses.
- If, during Brexit negotiations, access to EU single market cannot be secured then UK employers could be forced to pay import and export tariffs when transacting with EU countries, reducing capacity for EU consumers to purchase UK exports.
- Likewise, if free movement of labour is excluded from any future UK-EU trading relationship then UK business will potentially require visas for EU nationals which would represent an onerous business cost. These Visa regulations would also mean less available skilled workers as there’s likely to be less EU nationals living in the UK now.
Brexit represents the biggest change to UK trading and economic conditions for at least a decade. E-commerce businesses are likely to be confronted with both challenges and opportunities as a result of the referendum decision. Planning for the former whilst building for the latter will help your business thrive in this unusually turbulent time.