What does it mean for you?

The Consequences of Brexit

The departure of the UK from the EU, or Brexit as it has now become universally known will, without doubt, affect every person in the UK in some way and impinge upon most businesses either directly or indirectly.

The preparation for Brexit should have been at least on par with Y2K inasmuch as no one really knows the real damage that will be done to the economy in the short/medium term.

Recent Brexit Milestones
01 Apr 2019
Prime Minister may attempt to pass the Withdrawal Bill for the 4th time.

01 & 03 Apr 2019
MPs will attempt to find a majority consensus on a series of indicative votes.

29 Mar 2019
The official date for the departure of the UK from the EU. This date is enshrined in the laws of both the UK and EU and a “no deal” departure will take place unless the laws are changed before that date.
The third attempt at passing Withdrawal Bill fails to gain a majority by 58 votes

By 27 March 2019
UK Prime Minister will put her Withdrawal Agreement to Parliament for the third time. If it passes Brexit will be delayed until June 30. The result will trigger a new leave date.

14 Mar 2019
Parliament votes to allow the Prime Minister to return to Brussels to negotiate an extension to the execution of article 50 of the Lisbon agreement.

13 Mar 2019
In a defeat for the Prime Minister, MPs vote to rule out a ‘no-deal Brexit’.

12 Mar 2019
The Prime Minister loses the ‘Meaningful Vote 2’.

Brexit Events to Watch
10 April 2019
EU summit to discuss Brexit and possibly approve extension.

12 Apr 2019
The UK will leave the Eu if MPs don’t vote in favour of Prime Minister’s Withdrawal Agreement.

22 May 2019
The UK will leave the EU if MPs vote in favour of Prime Ministers Withdrawal agreement.

23 May 2019
European Parliamentary Elections begin. If the UK fails to reach an agreement by April 12th and requests a longer extension, it will have to field candidates in these elections.

30 Jun 2019
Brexit date requested by UK.

02 Jul 2019
The final date upon which all elections must be ratified to be considered legal.

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To dispel certain urban myths that have grown around Brexit, common sense tells us that air travel, for example, won’t be affected in any way other than getting through airports. the popular holiday destinations; Spain Portugal and Italy will ensure that British holidaymakers are allowed unfettered entry into countries.

There is no doubt that there will be a “Brexit impact” for business, whether that is disruption of your supply chain, dealing with existing customers within the EU or finding new markets. Not all the consequences will be negative but it is vital that businesses are prepared for every foreseeable development.

GBP to USD currency movment after the UK Brexit Referendum

The most visible effect of the Brexit negotiations so far has been the “Brexit pound” relationship. The foreign exchange market immediately took on the view that Brexit was bad for the UK economy as soon as the result was announced. Sterling fell from a high of 1.5015 to a low of 1.3315 in the month of June 2016 alone and has resided mostly in a range between 1.3500 and 1.2500 ever since. As the negotiations ended and Brussels stance hardened, the market concentrated on the prospect of the UK leaving with no deal. Following the disagreement over the Irish Backstop, a no deal departure became more possible and the pound hit its post-referendum low.

The lack of desire for a no deal Brexit is one of the few matters that Parliament can agree upon although several Brexiteer MPs considered it to be an important bargaining item that the Government should have retained in its “armoury”.

Eventually, we have reached the point we are at with less than a month to go until March 29th. The Prime Minister is still, ever more frantically, trying to persuade EU Negotiators to agree legally binding changes to the Backstop agreement while at home she has been forced to concede to a meaningful vote at which if her proposals are rejected two further votes will take place.

The first will be on Parliament’s approval for a no deal Brexit, then if (when) that is voted down, a vote to delay Brexit entirely. The vote to delay will anger Brexiteers who may try to wrench control of Brexit from the Prime Minister’s grasp.

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Brexit Risk Management

Finding the best tools for Brexit risk management
The assessment of risk to your business should have been completed but the most obvious decision should be to mitigate every possible financial risk. If you are a buyer of currency to pay suppliers you should have considered hedging 100% of your exposure as far out as a year. Buyers of Sterling in settlement of foreign currency receipts should have placed orders to ensure the future value of currency receipts.

The Brexit exchange rate impact risks are not equal. A no deal Brexit could see Sterling fall to 1.2000 versus the dollar, while any rally a softer Brexit would be limited by continued uncertainty.

brexit risk management through hedging exposure
There will also be a “Brexit effect” on the euro, which while not as profound as on the pound will add to the current economic slowdown engulfing the Eurozone. It will pay to hedge exposure between Sterling and the single currency as the outcome following Brexit will be unpredictable.

It is almost impossible to say how long markets will be affected by the fallout from Brexit as the entire UK and Eurozone economic picture will be entering an entirely new and never before seen paradigm.