By Mellica McPherson
1 October marked 100 days since the United Kingdom voted to leave the European Union in a referendum, and it is being reported that the mother country did not suffer any major economic setback as a result of Brexit.
The British Virgin Islands and the rest of the Overseas Territories eyed the post 23 June referendum period with interest as pundits globally predicted that havoc would follow. As a result of the predictions local talk shows and other forums were rife with comments exploring what the results of the referendum could mean for the Territory.
Now it appears that some predictions did not come to pass as it was disclosed that there were no major effects on the British economy since the Brexit results. The announcement was made in a document that was released on 21 September by the United Kingdom’s Office for National Statistics (ONS). The document pointed out that the ONS came to the conclusion after studying data such as prices, trade, employment and retail sales that were published since the referendum.
While the ONS admitted that there was an immediate impact on the stock market and United Kingdom currency as expectations about the UK’s trade position and wider economic relations with the EU and the rest of the world changed significantly. The Statistical office maintained that the effective value of the pound sterling had already depreciated by 7.3% between early August 2015 and referendum day in June 2016. In fact, the ONS pointed out the pound recovered quickly: “the pound fell a further 9.5% by the end of July before steadying and then rallying a little since,” the ONS said.
The UK Statistics Office stressed that prices were not affected by the currency depreciation. “The fall in the value of sterling has so far had little effect on prices. Prices of material and fuel purchased by producers – “input prices” – increased in July and August at about the same rate as in the previous 2 months; 12-month growth rates have accelerated but mainly as last year’s sharp declines fall out of the calculation. There is also little sign yet of an effect on factory gate or consumer prices. In addition, house prices continued to grow strongly in July, albeit at a slightly slower annual rate due to last year’s price changes, with annual growth falling from 9.7% in June to 8.3% in July,” the ONS stated. Importers, exporters and business people based in the UK have differing views on the matter, often in disagreement with official statements; the financial sector industry has in fact expressed serious concern with many operators opening offices on the continent as a precaution in case the reality may not be as rosy as official sources indicate. That would mean that they are making preparations for the worse. An expose on Euro News this week touched on many weaknesses and negative results caused by Brexit and showing several operators confirming their move to continental Europe.
It was reported that the UK’s manufacturing output did see a fall of 0.9% in July, after similar falls in May and June, but the ONS pointed out that this fall was following a large growth seen in April. Although the UK construction output was flat in July, the situation was glazed over with the explanation that the flat output was a continued trend of broadly flat output growth which began at the start of 2015. Nonetheless, it was noted that in July, there was a negative contribution to construction output from the private commercial sub-sector, a possible sign of retailers and other companies holding back on investments.
As it relates to the national deficit the ONS disclosed: “While the UK’s goods deficit narrowed by £1.2 billion in July, this is unlikely to reflect improved trading conditions from the depreciation of the pound. Given order and delivery lags, any such impact would take longer to emerge.”
It appeared that spending was affected immediately after the referendum, but the effect was reportedly short lived as things were said to have bounced back by July: “The volume of spending in shops and online fell back slightly by 0.2% in August but this followed strong growth of 1.9% in July. So far there are no signs of a sharp collapse in consumer confidence as some early fears had suggested.”
As it relates to employment the ONS mentioned the leveled employment rate confirms that the UK economy is strong: “The continued high employment rate of 74.5% for the three months to July would also fit with a picture of broad strength in the UK economy in the run up to and in the period immediately following the EU referendum.”
BBC World News on Wednesday reported about the optimism of Prime Minister Theresa May, but one of the anchors was perplexed about how she could help the lower class with revenue decreasing.
However, ONS explained that it is yet to be seen whether the services sector, which makes up more than three-quarters of the UK economy and has driven growth since 2009, has been impacted by post-referendum uncertainties. Especially since the ONS said that they are yet to get information on any such effect on business investment.
Is Brexit Fear Over?
While the statistics may bring comfort, and may create the opinion that the worst is over, even the ONS Chief Economist Joe Grice is mindful of that notion. He opined that this is just the beginning: “As the available information grows, the referendum result appears, so far, not to have had a major effect on the UK economy. So, it hasn’t fallen at the first fence but longer-term effects remain to be seen. The index of services published soon and the preliminary estimate of third quarter GDP, published at the end of October will add significantly to the evidence,” he said.
Even the report noted that the post-referendum picture is still emerging and will continue to do so over coming months, quarters and years. “Information so far generally covers short-term indicators with other important information not yet available. Nevertheless, there has been no sign of a major collapse in confidence and, within the data that is available, some indicators of strength,” the ONS said.
Prime Minister Announces Exit Plan
United Kingdom Prime Minister Theresa May announced on 2 October in her Conservative Conference speech announced that the vote to leave was the biggest vote for change the UK had ever known. She announced that the UK’s withdrawal from the EU will be done according to law: “Everything we do as we leave the EU will be consistent with the law and our treaty obligations, and we must give as much certainty as possible to employers and investors. That means there can be no sudden and unilateral withdrawal: we must leave in the way agreed in law by Britain and other member states, and that means invoking Article Fifty of the Lisbon Treaty.”
She announced that the United Kingdom will invoke Article 50 no later than the end of March next year, and that negotiations will begin to discuss the establishment of a relationship with the European Union. However, the Prime Minister noted that the negotiated relations will be new one: “It is not going to a “Norway model”. It’s not going to be a “Switzerland model”. It is going to be an agreement between an independent, sovereign United Kingdom and the European Union,” the Prime Minister said.
Late last month, Chancellor Philip Hammond warned that there may be “difficult times ahead” as leading economists halved their growth forecast for the UK for 2017. He stressed that Britain had the “tools necessary” to support the economy as its relationship with the European Union is reshaped. It was further reported that the president of financial services giant Morgan Stanley further warned that the City of London will suffer as a result of Brexit.
BVI Concerned about Travel and Financial Sector
In a statement issued on 30 June immediately following the Brexit decision Premier and Minister of Finance, Dr. The Hon. D. Orlando Smith said that it will be up to the new Prime Minister to formally start the process for the UK’s exit.
He however announced that the Brexit decision is of significance to the Territory: “This decision is not only relevant to the UK, but also the British Virgin Islands and other Overseas Territories who are legally associated with the EU on the basis of Britain’s current EU membership.
Premier Smith said that BV Islanders are especially concerned about travel and migration rights and whether there will still be hassle free travel when the exit is completed: “British passport holders and those holding British Overseas Territories Citizens passports in the meantime will continue to be able to travel as normal. Similarly, British citizens will be able to live, work and study in the EU, visa-free, as was the case before the referendum. However, the free movement of UK passport holders within the EU will, of course, be a subject for the exit negotiations.”
Meanwhile on Harneys website Oliver Bell noted that “one aspect of particular concern stemming from this [Brexit] is the EU’s exercise to create a list by the end of 2017 of what is being referred to as its “common EU list of problematic tax jurisdictions”. A similar exercise is being conducted by the OECD but based on objective criteria, including compliance with the OECD’s standards for exchange of tax information – on which the BVI and other UK Crown Dependencies and Overseas Territories rank highly. The EU process, in contrast, is highly political. With the UK absent or marginalised in negotiations, there is a real risk that this list becomes primarily an attack on low-tax jurisdictions. This could be problematic for the BVI despite its full compliance with OECD transparency requirements and FATF anti-money laundering and terrorist financing standards.”