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Brexit Wounds? Start the Preparations by Jonathan Thomas

Last week’s choice by a majority of UK voters to leave the EU has ignited political and economic shockwaves which have extended well beyond our shores. Global stock markets lost and then partly regained over a £1 trillion while sterling has fallen to a three-decade low against the US dollar.


In such a febrile and fast-changing environment, there has been a palpable spike in business concerns about an economy which, according to Bank of England Governor Mark Carney, has entered an undefined period of “economic post-traumatic stress disorder”.

So what can businesses do to manage the consequences?

The first task is to prepare for a sharp downturn in the second half of the year as business and household confidence and spending tumble. Governor Carney clearly sensed something pungent ahead when he noted that “the economic outlook has deteriorated and that some monetary policy easing will likely be required over the summer” But with the Bank Rate already at a historic low of 0.5% any further cuts are unlikely to have a dramatic offsetting effect. Factoring in the possibility of a technical recession which extends well into 2017 would be prudent.

Any policy easing would put additional downward pressure on sterling against both the dollar and the euro. While this would help UK exporters, those companies exposed to imports from the US or euro area, even indirectly via their suppliers and clients, could see a concomitant rise in costs and decline in business.

Finally, keep an eye on No.11. We all breathed a sigh of relief when George Osborne ruled out an emergency austerity budget in the light of a vote to leave the EU. In his own words, “Under the circumstances and in a world where growth has been hit significantly, it would clearly be implausible to cut spending or raise taxes such as to meet the target.” But this doesn’t mean that all is sweetness and light on the fiscal front. Come the autumn, the newly-installed PM and her/his hand-picked neighbour may have other ideas, especially if the economy proves to be more robust to the post-Brexit storms than the more extreme “Project Fear” forecasts suggested. In the event of an autumn adjustment in the public balance sheet, it’s hard to believe that UK corporates would emerge unscathed.

  • Do you think the economy will change as much as those on both sides of the debate suggested as a result of the vote to leave the EU?

  •  How is your business planning to manage any changes which may take place?

Let us have your feedback .

About the writer Jonathan Thomas

Jonathan Thomas

This piece was contributed by Economist Jonathan Thomas.  After finishing his graduate studies, Jonathan started his working career lecturing and conducting research at the University of Cambridge, where he was also a fellow in economics at Emmanuel College, and at University College London. After a spell leading the money and credit team at the Bank of England, he moved to Lloyds Commercial Bank where he writes and comments on the global economy.

This post was originally posted in 2016

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