How Likely is a Brexit and What Impact Would it Have on Consumer Goods Companies?

As the UK prepares for its general election on May 7th 2015, the Conservative Party is ahead by four percentage points at 36.0% of the vote according to an Observer poll at the time of writing. The significance of this is that if the Conservatives win the election, part of their manifesto is to guarantee to hold a referendum in 2017 to let the public decide whether or not to remain in the EU. The possibility that Britain may exit the EU is being referred to as a Brexit. Opinion polls conducted among the British public on April 15th 2015 reveal a split among the public on the issue of remaining in the EU, with some indicating a preference to leave, or to remain only on renegotiated terms. This brings the real possibility that Britain may leave the EU in 2017. The effects would likely be more harmful than positive to the UK.

Percentage of Total UK Imports/ Exports Accounted for by EU-28 Countries: 2009-2014

UK-Imports-Exports

Source: Euromonitor International from International Monetary Fund (IMF), Direction of Trade Statistics

  • The Conservative party is predicted to be four percentage points ahead at 36.0% at the time of writing according to opinion polls conducted by the Observer, bringing with it the possibility of a 2017 referendum on whether the UK should remain in the EU;
  • An opinion poll conducted by Populus among the British public on April 15th 2015 revealed that 39.0% of the public is in favour of leaving the EU, and 40.0% wanted to remain. Many indicate a preference to remain only on renegotiated terms. This brings the real possibility that Britain may leave the EU in 2017;
  • One of the main terms of Britain’s EU membership that have proved contentious for some is the freedom of movement of workers, which gave rise to an influx of workers to the country from accession states. This is one of the key principles of the EU and is highly unlikely to be negotiable.

Flow of goods and services in EU likely to be disturbed

  • The EU-28 is a major trade partner for the UK. The region accounted for 52.1% of the UK’s total exports in 2014 and 54.5% of its total imports. Part of the reason for this is the freedom of movement of goods under EU law, which hold that countries are not allowed to restrict the flow of goods in any way or to impose measures that would unfairly disadvantage companies from member states. If a Brexit took place and EU countries chose to implement measures to restrict the flow of any goods to or from the UK such as import taxes on goods form the UK, this could well reduce Britain’s imports and exports to the EU-28. This could positively impact consumer goods companies based in other EU member states but likely disadvantage those based in the UK;
  • Some major firms have indicated that they would likely shift away from the UK if it broke away from the EU. Business for New Europe (BNE), a business group whose members include large international corporations, has indicated that it considers a Brexit to be detrimental to the UK’s attractiveness for companies. This could trigger a rise in unemployment and a weakening of consumer confidence and consumer spending;
  • On the other hand, competition for lower skilled jobs may be reduced, easing the burden of welfare spending and triggering real rises in wages per hour, which could boost spending. Overall however, the benefits for the British consumer goods industry of the UK remaining in the EU far outweigh any advantages of a Brexit.