How businesses may be effected after Brexit

Tax Affinity - Expert Chartered Accountants in Kingston upon Thames

Now that the dust has settled after UK voters decided to leave the EU in the referendum last week. It is worth taking stock of what is going to happen in the short to medium term financially.

While many media outlets are playing the doom and gloom card and many unhappy pro EU voters waste time creating futile online petitions and holding demonstrations to redo the referendum. Entrepreneurs who hold no political agenda are gearing up and putting more positive energy into their business to make it stronger for the future.

They know that the decision has been made and thinking positively of what will come and how to steer their business away from problems is the way forward. So the question is what are they looking at?

Well the following list should help highlight what they are looking at to help you focus on what is important for you:

• In the long term there is no doubt that the UK will be stronger economically, but in the short term there will be some problems. So it is wise to try to minimise these by planning today for the coming months.
• Sterling will decline in the short term as FX markets panic and adjust. There is nothing stopping members of the public panic buying Gold, Euro's and Dollars as they dump the (GBP) Pound the world over. This will not last and will soon return to a stable situation as soon as the fearful have depleted their funds. But how long it lasts is dependent on personal holdings etc. But have no doubt, the rich are getting richer as they buy up all the cheap GBP and wait for the long game - when it will rise back to the strong level it was in the past and they will walk away with a tidy profit.
• As a knock on of the FX instability, buying goods and services from other countries will become more costly, in the short term at least. So smart business buyers are looking already at UK suppliers and other markets apart from the EU such as India, China, and Brazil.
• Some retailers will make more profit and raise prices saying that they are affected by the FX and foreign supplier’s costs rising, when they are still selling previously stocked items. This can be a way to make extra profit in the short term and help mitigate rising costs in the longer term.
• UK inflation will rise, causing a slowdown in the UK economy and a possible move to a recession. The Bank of England has announced it has put aside more than enough reserves to help mitigate this. This is however a golden opportunity for savvy entrepreneurs as they increase their net wealth by snapping up assets at reduced prices.
• Goods being sold to other countries will become cheaper for foreign buyers - meaning UK prices are more attractive to foreigners and more opportunities to sell UK products abroad and in new markets. Exporting may be a new avenue to explore at this time.
• Household finances may be squeezed in the short term as some basic costs rise; again the Bank of England has announced that it may cut interest rates to help ease this pressure especially on mortgages and loans. This will mean the public will be more careful to spend and may look to reduce bills and decrease spending. Some businesses may have to adopt a more competitive pricing strategy.
• Housing market will slow down, as buyers step back to see what will happen to the property prices in the coming months. It is possible that we may see UK sellers being more open to lower offers as the demand and supply shifts. An opportunity if you’re buying. Foreign investors will also stall for a while as they wait to safeguard their investment incomes.
• Rental costs may rise as landlords cover their increase in costs.
• Wage rises will slow down, with a possible rise in unemployment due to companies trying to minimise increasing costs in their business.
• Medium to longer term possible cuts to the welfare budget from the government seeing lower tax credits and benefits payments. As a lot UK budgets are dependent on EU agreements.
• Government may extend its austerity plan beyond 2020 as originally planned after the 2 year notice period expires after the activation of article 50.
• Possible cancellation of promise to remove 5% VAT on domestic fuels.
• 'Triple lock' for state pensions may be compromised due to it being dependant on inflation.
• UK stock market will drop in the short term the same as the FX market as many overseas investors sell their shares and move their investments to other markets. This should quickly recover though as large investors buy the cheaper shares and look to gain in the long term when the markets rise back. Large investment brokers such as Hargreaves Lansdown are predicting a short term fall and a long term unknown. Savvy buyers are doing their homework and investing in stocks that are likely to rise sooner than later.
• Holiday costs will rise by approx £300 per household due to the devaluation of Sterling (GBP) compared to other currencies. Negatively affecting the holiday market with some people choosing to delay holiday plans and or maybe change to holidaying in the UK.
• On the contrary UK Tourism will rise as the GBP drop makes it even more affordable for foreigners to come to the UK and spend here. A good opportunity for UK businesses to target these holiday makers. London's tourism spots will benefit the most.
• Budget airlines such as Easy Jet and Ryan Air have said that the cost of their flights may rise as result of Brexit as most of their flights are to the EU. But good news is that British Airways thinks there will be no effect to them as most of their flights are international.
• Mobile phone roaming charges may rise as the EU rules may no longer apply to UK firms. Both BT and Vodaphone have confirmed this. But the UK government could force UK phone providers to adopt the same rules to safeguard the public.

The biggest thing to remember is that the UK will remain a member of the EU for up to 2 years after the activation or article 50. And the current Prime Minister has said that the next PM will have to do this in October 2016. He/she will then also have to negotiate new trade deals with the EU and new emerging markets in the world to safeguard the UK economy. So start working harder today for success tomorrow.

By Anni Khan at Tax Affinity Accountants

Tax Affinity Accountants are experts in Tax and Accountancy. Based in Worcester Park and Surbiton they are considered in the Industry to be experts accountants for small businesses. Helping and supporting business throughout the UK, they regularly help new and established businesses to succeed.

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