Brexit – now what?
As many of you will be aware, last week Britain voted to leave the European Union (EU). This caused much discussion and uncertainty in the markets, however this is settling down and the ASX looks like opening flat this morning.
We will not know the full extent of the economic impact until we understand the deal that the UK will negotiate with the EU. This could take a number of years, and will probably happen before they invoke Article 50 in the Lisbon Treaty which starts the divorce of the UK from the EU. We expect this initial shock to die down over this week, so don’t panic, be calm
The UK will be negotiating for the next few years on the options below:
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- Being part of the EU all but in name, like Norway but this also includes payments to the EU with no seat at the table.
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- They could negotiate a Customs Union model like Turkey.
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- A bilateral agreement between the UK and EU similar to the Swiss model, but this also requires payments to the EU.
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- A free trade agreement like Canada, but this took Canada 15 years to negotiate.
- A combination of the above while also relying on the WTO agreements.
The above options take time to negotiate, also the UK will also need to start negotiations with other countries outside of the EU (
for example it will not be able to rely on the FTA the EU has with Canada).
So the main takeaway is that UK will be part of the EU for a while longer, and we can expect the status quo from an economic perspective. So don’t panic and remember that this is the time when a disciplined investment strategy shows it’s true value.
Thanks for investing!
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