A Brit-Centric View Of What Brexit Means

WITH STORY BRITAIN EU FUTURE - In this May 20, 2016 file photo, British politician and leader of the UKIP party Nigel Farage holds up a placard as he launches his party's campaign for Britain to leave the EU, outside the EU representative office in London. Working on how Britain might extricate itself from the EU and whether Europe would unravel in its absence is about as easy as predicting how Britons will vote on June 23, 2016. (AP Photo/Alastair Grant, File)

Earlier today, one of RedState’s founders, Mike Krempasky, forwarded us a briefing memo on what the Brexit vote means in Britain to a largish international consulting firm, the Brunswick Group. While we’ve been talking about the politics of it all as it applies to the US, this gives a real insider’s look into the coming issues from a UK-centric point of view.

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This memo, by the way, is reproduced with the permission of Brunswick Group.

EU Referendum: what comes next?

24 June 2016

Overview

The UK’s vote to leave the EU will have a profound impact on politics, business and the economy.

The Prime Minister has announced he will resign, his potential successors are preparing to kick start campaigns, while the markets try to make sense of what took place overnight.

But in the short and medium term what is likely to happen?

Brunswick’s Public Affairs team examines the issues:

  • Britain is a country divided, not just along traditional party lines, but on life experience – particularly in terms of age, income and education. This not only has an impact on how domestic politics will evolve over the coming weeks and months, but this movement against the establishment will be closely analysed by pollsters in the US and across the globe as similar trends develop elsewhere.
  • Leadership battle (1): – Boris Johnson is the firm favourite to succeed David Cameron as Prime Minister when he steps down in the Autumn although he does not always command the sort of support in the party as he does in the country The Tory party at Westminster will choose two candidates and then the party membership will decide the winner in a ballot, to be announced at their party conference in Birmingham in October. The others in the running could include Theresa May, Stephen Crabb and key Leave campaigners Andrea Leadsom, Priti Patel and Liam Fox. Chancellor George Osborne is now a 20-1 outsider, having been a hot favourite only 12 months ago.
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  • Leadership battle (2): The Labour party, meanwhile, also faces a potential leadership election, with moderate MPs tabling today a motion of no confidence against the party’s left-wing leader, Jeremy Corbyn, who is accused of having contributed to the outcome of the referendum through his lukewarm public support for the Remain campaign.  But even if a leadership election takes place, Corbyn remains popular with most party members and so he (or another left-wing alternative) might be the most likely victor.
  • Legislative pipeline: A Remain vote would have meant a return to parliamentary business on Monday with a re-start of this Tory government’s programme. This is now not the case. Parliamentary business will remain stagnant.  Many policies will remain on the drawing board or at best the launch pad for example, on big decisions such as airport expansion.
  • Another referendum on Scottish independence is possible. Nicola Sturgeon, First Minister of Scotland, has said Scotland has chosen to stay in the EU and that the option of a second referendum on Scottish independence is now ‘on the table’ and could be held in the period before the UK leaves the EU

Markets

  • After an extraordinary first hour of trading, markets are showing some early signs of stabilising. By 10am BST, 2.2bn shares had traded in the FTSE 100, 538pc more than the average of 343m shares that have been traded by the same time over the past five days. European markets are trading even lower.
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  • The FTSE 100 has recovered slightly to a loss of 3.6pc by 2pm BST. Activity remains intense, particularly among the banks, house builders, estate agents and holiday companies.  Most have felt compelled to issue statements to the market to sure up investor confidence.
  • Interestingly, both the Frankfurt and Paris markets are markedly lower than the FTSE, which is being interpreted in a number of ways. One explanation is that they don’t have the release valve of sterling’s fall to cushion the blow. Another is that this is worse for some other European countries – Ireland, for example. And also possibly that European investors were not as prepared for the leave vote as their British counterparts.
  • Sterling is effectively a self-correcting protection mechanism for the country, which has helped the UK weather the aftermath of the global financial crisis better than many other Eurozone countries and it is doing its job today by easing monetary conditions.
  • The Bank of England will, at least for now, be content that its offer of support appears to have put a floor on sterling markets.
  • The extent to which market weakness carries on will depend on whether investors see the unfolding economic impact on UK GDP as greater than the currently expected 2-3%, drop dependent for example on the exit terms for the UK.

Media

  •  Although media attention has focused largely on reaction from policymakers and the financial markets, there is significant interest in the position of corporates – with the most common questions being about the likely impact of Brexit on their business; the contingency plans they have in place; and whether they should have behaved differently during the campaign.
  • Many companies are looking to strike a balance.  They want to provide reassurance to employees, investors and other stakeholders but do not want to engage in the wider, febrile political debate.  One option being pursued by several UK and international companies is to issue a reassuring internal message to employees to let them know that it is business as usual, which they also make available to journalists when asked for comment.
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  • Over the weekend, we can expect the media debate to move to a post-mortem of the campaign.  In particular, journalists will be asking who is to blame for the defeat of Remain.  The finger is likely to be pointed at Prime Minister David Cameron for calling the referendum in the first place; Labour leader Jeremy Corbyn for being lukewarm in his public support for Remain; and the strategy of Britain Stronger in Europe, the official cross-party Remain campaign, with its alleged focus on ‘experts’ and ‘Project Fear’.

Managing the divorce

  •  David Cameron has made clear that he does not want negotiations with Britain’s European partners on Brexit to begin straight away.  Instead, he has said that he wants to wait for his successor as Prime Minister – likely to be in place by October – to trigger the ‘Article 50’ process under which an EU member state can begin the up to two-year process of deciding the terms on which the UK can withdraw from the EU.
  •  That raises the prospect of whether a new Prime Minister could seek to hold a general election in order to win a fresh mandate from the British people before he/she begins negotiations.  Under Britain’s Fixed Term Parliaments Act, it is difficult – but not impossible – to engineer fresh elections before May 2020.  If a vote does take place, the outcome could be deeply uncertain as a divided Conservative party battles an unpopular Labour party under its left-wing leader Jeremy Corbyn.
  •  But Brussels is adamant that the leave process is not going to be up to Britain. They will want this process over far quicker than UK politicians in order to avoid the UK exit deal becoming an issue in forthcoming elections in several major European countries.
  • There will be concern over potential domino effect across Europe. Britain is not the most eurosceptic of the member states. Greece and France both record higher euroscepticism ratings, and Germany and Spain are consistent with the UK. It will therefore be important to look to the Spanish general election this weekend, as well as the French and German elections next year to see whether any of this sentiment comes through in Britain’s European neighbours.
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  • The big question for many people is how Britain manages its trading relationships with the rest of the world as the UK will no longer be part of EU trading arrangements when it leaves. We should not also underestimate the legislative challenge faced by Parliament to deal with all those areas of national life that have previously been governed by European Union legislation.

About Brunswick Group
Brunswick is an advisory firm specializing in critical issues and corporate relations. Founded in 1987, Brunswick is an organically grown, private partnership with 23 offices around the world.
If you have any questions about this briefing, or if you would like to discuss how your company can plan ahead for the referendum, please contact:
Andrew Porter, Sumeet Desai or Stuart Hudson

Tel:       +44 (0)207 404 5959

Email: [email protected]

 

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