5 Things US Businesses Should Know About Brexit

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Since the news broke on Friday, June 24, that the result of the United Kingdom's referendum was to leave the European Union (EU), world markets have been jittery. Yet, interestingly, just four days after the vote the leading index of major UK industrials, the FTSE 100, has recovered much of the ground it lost and the strength of the pound against the dollar has recovered a little from a 31-year low. Why? And what do we say to US businesses operating in the UK and Europe who want to know what is to be done right now?

1. Keep Calm and Carry On (For Now)

The first thing to remember is that Britain has not left the EU or even taken the first step of triggering the formal request to the EU to do so. It will probably be two to three months before notice is given and then at least a year or two before it officially quits the Union. So, at the moment, there is no change at all to the laws or the free movement of people, goods, or services. And so we hear the wartime refrain, ‘Keep Calm and Carry On!’ In this instance, that may be sound advice.

Things will become clearer when the Conservative Party has elected a new leader to be Prime Minister, hopefully in September, and we know whether or not a general election is likely to be called thereafter. Many believe that what is needed now is strong leadership and some continuity. We will also watch with interest whether Scotland can wrestle some concessions from Brussels, given there was a clear majority for remaining in the EU across that Kingdom. Another referendum on Scottish independence is possible, but it is certainly not a given. 

2. Expect Big Business to Seek to Minimize Upheaval

The vast majority of big businesses, professional service firms, and financial and educational institutions did not support the movement to leave the EU and will no doubt influence those who will now negotiate the terms of its departure from full membership of the Union. It can be expected that their influence will seek to minimize upheaval and require continued close relations with European partners. 

...other member states of the EU may ask for the same deal. If so, the EU will retreat from political union and withdraw to being a European economic community as it was...

3. Much Depends On How the Remaining EU Members React Now

If remaining members show a willingness to negotiate the best economic and trading terms possible for both sides, other member states of the EU may ask for the same deal. If so, the EU will retreat from political union and withdraw to being a European economic community, as it was for much of the 1970’s, 1980’s, and 1990’s. For a lot of British voters, this is what they hoped for when they voted ‘Leave.’ There is strong resistance to this from the institutions of the EU and the governments of its largest members, France and Germany, who are currently talking of making an example of the UK ‘pour encourager les autres.’ But, other countries may welcome the chance to discuss the direction the EU is traveling. There are strong signs that large numbers of ordinary citizens do not want an ever closer Union. 

4. An Exit May Only Affect a Part of Everyday UK Business Operations 

Seventy-five percent of the UK’s gross domestic product comes from professional services. This is the same percentage of voters in London who voted to remain in the EU. Some of the world’s largest leading financial institutions, law firms, and accountancy and management consultancy firms are based in London, but act on behalf of clients all around the world. Although an exit from the EU was not what ‘The City’ wanted, it only affects a part of its everyday business operations. The story told by the ‘Leave’ campaign, headed by former mayor of London Boris Johnson, was that any business lost in Europe will be replaced and exceeded by other opportunities made available by increased UK independence to trade with others around the globe on its own terms. Only time will tell, but maybe they will be proven right.

...it should not be ignored that the UK is the fifth largest economy in the world behind the US, China, Japan, and Germany.

5. Now May Be a Good Time for Long-Term Investors

Lastly, it should not be ignored that the UK is the fifth largest economy in the world behind the US, China, Japan, and Germany. It will continue to invest and look for investment globally, including in Europe. Given that the value of the pound weakened against the dollar in anticipation of a possible ‘Brexit’ and sunk further after the result was known, though rallying slightly, it seems unlikely that it will return anytime soon to the $1.65 level it was trading at just a year or so ago. US investors looking for long-term investments may find this an appealing time to invest.

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[Simon McMenemy is the managing partner in the London offices of law firm Ogletree Deakins.]

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