The UK’s gross domestic product (GDP) – a key indicator of economic growth – could be cut by up to three percent in the next two years due to Brexit, according to a credit risk specialist.
The warning came from trade credit risk insurer Atradius – one of the few companies to publish specific figures on the estimated short-term economic effects of Brexit.
Its statement explained that some impact has already been felt with the depreciation of the British pound and delayed investment in businesses and staff. It added that UK GDP is expected to reduce by one percent to three percent in the next two years. The structure of trade agreements over the coming two years will determine the longer term impact, it said.
Atradius also stated that an impact will also be felt elsewhere. It added that for the Netherlands, foreign direct investment will be affected and for Ireland and Norway export trade could be impacted.
It also believes the Benelux countries and Ireland are expected to see increases in insolvencies ranging from one percent to 3.5 percent. It expects the change in insolvencies in other European countries to be negligible.
Andreas Tesch, chief market officer for Atradius, said: “In the UK the economy had settled to a more moderate growth of 0.4 percent in the first quarter. However, the vote to leave has had an immediate impact on the exchange rate against all primary currencies.
“While we acknowledge that trading treaties need to be addressed, in the short term, businesses trading overseas will continue and benefit from a lower exchange rate.”
Other reactions from the consumer credit profession, specifically from the trade bodies, have focussed more on the regulatory structure for the UK. Some have sought to provide assurance that there will be no immediate changes.
Stephen Sklaroff, director general of the Finance & Leasing Association (FLA), said: “We are at the beginning of what will be a long process of discussion and negotiation. As the Bank of England and Financial Conduct Authority (FCA) have already emphasised, the current legal and financial regulatory framework for FLA members remains exactly as it was before the vote, and it is likely to do so for some considerable time.
“The UK has a strong and resilient financial sector and the FLA’s members will continue to make a vital contribution to the economy.
“The FLA will work closely with the government, regulators and other stakeholders to ensure that its members’ interests are properly reflected in discussions over the coming months and years about the possible market and regulatory consequences of the decision to leave the EU.”
Other reactions from individual firms have focussed on the financial and property markets, as well as the potential impact on SMEs.
Richard Pike, sales and marketing director at servicing technology specialist Phoebus Software, said: “This is a win that was won on non-economic campaigning grounds, we all have to now live with any positive or negative consequences that may occur.
“David Cameron’s resignation will add significantly to the sense of uncertainty and it will not deliver the stability that the Prime Minister said that he wanted to achieve whatever the outcome. Many predicted the fall in the pound, but not the levels that it would fall to. The FTSE is now in serious decline.
“The housing market in general shouldn’t be too affected immediately but it will be interesting to see what happens with the upper-level property market and whether foreigners seize the chance to buy at more advantageous exchange rates or potential buyers will be put off by the new perception of the UK as a standalone state?”
Blair Nimmo is head of restructuring for KPMG in the UK, a role that involves corporate recovery, business turnaround to help firms avoid insolvency.
He said: “The vast majority of UK companies will navigate the uncertain economic waters successfully. However, for a small number of businesses, heavy turbulence in the capital markets and the knock-on impact on liquidity could leave them in a fairly perilous position.
“Indeed, we have seen examples in the recent past of companies entering into insolvency as a direct result of such market volatility, so companies absolutely must be on the front foot and ready to take action over the coming days and weeks if they are particularly vulnerable.
“Ultimately, the key to good decisions over the coming weeks and months will be a calm and measured consideration of the facts as they become known over time.”
By Marcel LeGouais