18th July 2016
In late June, the United Kingdom (UK) voted to leave the European Union (EU) by a close 52-48 margin. To say the result came as a surprise to the world and even some Britons would be an understatement. Many credit fear and uncertainty in regard to the UK’s immigration issues as a cause for Brexit’s success. Others believe the people of Great Britain and Northern Ireland thought it was past time they were allowed to steer the destiny of their homeland without being beholden to rule of law on mainland Europe. Still, most experts believed the majority of the voting public would see that the positives outweighed the negatives of staying in the European Union and that leaving wouldn’t necessarily sate the influx of immigrants arriving on the UK’s shores.
Yet here we are in Australia like much of the rest of the world, twiddling our thumbs, waiting to see how the economy will be affected while the pound hits a 41-year low. To clear the air and possibly alleviate any concerns in the process, lets examine Brexit’s effect on Australia.
Obviously economic uncertainty is a key component in a depressed economy. For this reason, the Brexit result hasn’t affected any economy in a positive way, least of all the UK’s. That being said, these affects have all been relatively small. The Australian Stock Exchange (ASX) did take a hit in the immediate wake of the Brexit vote. The reason was investments started moving away from the UK because keeping them there was seen as too risky. Also due to deflation in Britain, Australia’s already very low interest rates went even lower and while this might seem like great news to those in the market for a house, it doesn’t portend good things for investors. Investments in commodities and oil will also decrease.
Traditionally, the UK and Australia have been strong trade partners, although neither one is the other’s largest trading partner. For this reason, things don’t look too bad, but experts predict there will be ripples—if only little ones—felt in businesses of all sizes in Australia. One suggestion in the short term for mid-level companies to larger multi-nationals is to reduce or avoid trade with the UK until more of the wrinkles get ironed out and markets stabilise. Also small businesses can make better judgments about the future by taking to currency hedging. There are also some experts who believe Brexit could make investors think twice about pouring their money into the UK at this point. Some of these investors could look for other countries to invest in and although Australia’s low interest rates aren’t terribly attractive to investors, its stability and certainty looking forward could be.