1. The political overview
The dramatic referendum result of vote out on 23 June caught out the markets and much of the political establishment. Sterling immediately fell, hitting bank and airline shares. This was followed by the prime minister announcing his resignation and the new leader should be in place by the autumn. As well as a change of Prime minister causing a battle for power in the conservative party. The Labour leadership is in crisis, with Jeremy Corbyn facing much of the parliamentary labour party in open rebellion.
Boris Johnson who leads the field as a possible replacement prime minister has shown little in the way of following through with plans to effect exit from the EU.
In many ways, things are unchanged, except there is a greater sense of insecurity: what will happen next?
If the UK does leave the EU, the breakup of the UK is a distinct possibility. Scotland will almost certainly seek a second independence referendum in order to join the EU as an independent country. This will cause further political turmoil in England.
2. The economic consequences
The UK economy was in a downward trajectory before the referendum, with growth forecasts being regularly reduced downwards. The American economy which had recovered quite well since 2008, was beginning to show signs of slowing down, with the Federal Reserve Board regularly postponing a further rise in interest rates. There has been no return to the healthier pre 2008 era.
On the day of the referendum, Sterling hit $1.3122, its lowest level since mid-1985 and marking a roughly 11.7 percent fall from the currency's closing level according to Reuters (1) . The UK has lost its top AAA credit rating from ratings agency S&P. Also there has been a large fall in share prices of:
• Banks – general anxiety although they are much more robust than in 2008.
• Builders - talk of falling house prices and the loss of high paid London jobs.
• Holiday companies – demand falls as the pound buys less abroad.
• Airlines – fuel costs increase as contracts are in dollars and UK bookings will be down as the pound buys less abroad.
• Estate agents as buyers wait to see what will happen with interest rates.
3. The employment consequences
3.1 General overview
UK employers, who have kept investment decisions on hold until the results of the referendum were known, are likely to hold off implementing their plans. Overseas companies are going to think long and hard about investing in the UK and will be reviewing option elsewhere in Europe. A quarter of company bosses said they plan to freeze recruitment and 5 per cent said they expected to make redundancies , according to a survey of more than 1,000 business leaders by the Institute of Directors, as reported by the Independent(2) . There is likely to be an increase in temporary and contract workers as permanent hiring decisions are put on hold.
This sector employees 2.2 million workers in the UK. Our competitors in Frankfurt, Paris and Dublin have a great opportunity to take business and employment from the UK. The attraction of the UK is dealing across the EU with a financial passport to conduct such trade and, on leaving the EU, this is likely to be forfeited. HSBC has spoken about moving some jobs to Paris.
3.3 Building and construction
Loss of jobs when existing projects are completed. There may also be a number of contracts that are terminated before even starting.
Not obvious at this stage.
3.5 low wage employment sectors
One reported factor behind the out vote was a reaction against high levels of immigration in areas of high job insecurity with low rates of pay. There has been a 60% increase in reported racist incidents in London alone since the vote. This may mean that some immigrants will leave the UK and others in their home countries will be less attracted to finding work in the UK.
In times of extreme uncertainty, flexibility and the ability to respond quickly to changing events is all. Given the political turmoil and economic uncertainty it is crucial that those making business and employment decisions produce scenarios showing the impact in the short, medium and long term. Possibly scenarios could be:
• the UK leaving the EU and having a Norway position of open access to the EU market, but having to accept immigration and fund the EU at current levels
• a loose trading arrangement with the EU with some unfavourable tariffs, but without making payments to the EU and having greater control on immigration
• pulling back from the brink of leaving the EU due to the worsening economy, which may include savage government expenditure cuts and tax rises, either implemented or just around the corner. This could be achieved by an election with a political party having this in its manifesto or a second referendum.
(1) http://www.reuters.com/article/us-global-forex-idUSKCN0ZC17J accessed on 27/07/2016
(2) http://www.independent.co.uk/news/business/news/eu-referendum-brexit-institute-of-directors-hiring-freeze-redundancy-jobs-employment-uk-a7105171.html accessed on 27/07/2016
Authors: George Blair, Chair, HR Society; Angela O’Connor, President, HR Society