What Will Brexit Mean for Businesses? l Mercer Australia

What Will Brexit Mean for Businesses? l Mercer Australia

Navigating the Uncertainty of the UK’s “Brexit”

What will the historic Brexit vote mean for businesses and individuals?

While the UK’s vote on 23 June 2016 to leave the European Union sent shockwaves around the world, the long-term implications are yet to play out. How will the Brexit affect the markets and your company? How will the regulatory and risk environment change for organisations doing business in the UK, or with organisations operating there? Read Mercer’s latest insights on how you should be preparing your investment portfolio, your business, and your workforce. 

The UK Chooses Brexit: Considerations for Investors

Brexit creates significant political, economic, legislative and market uncertainty that is unlikely to clear in the near term. Given the speed with which markets typically react to such events, we are not suggesting that investors need to take any immediate action solely as a result of the referendum. However, it will be important to monitor events closely and to consider the impact of the referendum and any significant market moves on portfolios.  We can expect: 

  • The potential for significant market volatility across global equity markets, particularly in the UK and Europe, as participants weigh up the likely implications of Brexit.
  • Significant uncertainty in terms of the economic impact on the UK and European economies in particular, but also globally. The source of uncertainty is likely to persist for some time, while the nature of the UK’s trading relationship with the EU and elsewhere is negotiated and employers decide whether they need to alter their business objectives.
  • Legislative uncertainty for those organizations that operate cross border, for example, because of the way their employee benefits are structured or because of the markets they trade in.
  • A leadership election for the UK’s Conservative party now that David Cameron has announced he will step down. The nature of the debate prior to the referendum can only add to the political uncertainty.
  • The possibility of further referenda on EU membership in other countries across Europe. Since UK citizens have been given the opportunity to vote on EU membership, electorates across Europe might demand the same right. Should this sentiment take hold, it is possible that European markets will be plagued for some time by the possibility of one member or another voting to leave the union.

The UK Chooses Brexit: Considerations for Companies

The New Risk Environment: Short-Term Volatility and Protracted Uncertainty

Let’s not forget that the UK is the first nation state ever to leave the EU. The lack of historical precedent, along with the significant arguments to Remain advanced by expert bodies, suggest that UK markets will see significant volatility over the rest of 2016 as the shock is absorbed and sentiment fluctuates in response to political and economic announcements. Sterling may come under severe pressure, the stock market may sag, and UK property prices may tumble as domestic and foreign investors fear a significant shock to the UK economy.

Corporate Strategy Imperatives: Location and Regulation

Under the more likely scenarios (based on the aspirations declared by pro-Brexit politicians), global non-EU multinational companies and EU-headquartered firms with sizeable UK operations will need to rethink and possibly restructure their UK operations, given the likely additional cost and complexity associated with accessing EU markets. UK-headquartered firms with global operations, domestic firms, and government bodies will all face tactical challenges, but will be less affected in the medium term. Some industries will be affected more than others, with the most significant impacts anticipated in financial services.

Workforce Dislocation: Market Constraints, Welfare, and Pensions

The concern about immigration that underpinned much of the vote for Brexit will most likely inspire changes to employment and labor market regulation. While the movement of key talent and human resources may be the key concern, there will also be consequences for compensation, benefits, and pensions.

Negotiations will now determine the circumstances under which EU citizens will be able to enter and work in the UK, and the conditions in which EU citizens already in the UK, and UK citizens already in the EU, will be able to continue in their current roles. It is likely that some restrictions will be placed on EU workers within the UK labor market – in the order of two million people, who form a significant proportion of the retail, leisure, and service sectors. New bilateral agreements may be required for those organizations offshoring from the UK into the EU, and employment mobility constraints may influence decisions by non-UK multinational companies as to the viability of having their European headquarters in London.

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Thanks for your interest in Mercer! We’re eager to learn how we can help your company navigate the Brexit result.

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The UK Chooses Brexit: Considerations for individual super fund members

Our Mercer Super Trust customer site is keeping our individual customers informed of the latest updates on what every member of a super fund should know about Brexit and its implications.

Contact us to discuss these issues, or follow the links at right to download or read more.

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