INSIGHTS BLOG

BREXIT – HOW DID IT GET TO THIS, AND WILL IT AFFECT US?

Craigs Investment Partners, 18 February 2019

The reality of Brexit is looming closer. On the 29 March 2019 the UK will officially no longer be part of the EU.

We look at some of the key things that happened, and how it could affect us in NZ.

Firstly, why is the UK leaving the EU?

A referendum was held in June 2016. The British people were asked to vote on one question. Should the UK leave or remain in the European Union (EU)?

52% of Britain voted to leave the EU, and 48% voted to stay. This result created surprise and shock for some, as many believed the UK would vote to remain in the EU.

The Brexit vote proved to be an emotional vote for the UK people. Many pro-Brexit voters weren’t happy with increasing number of immigrants, and wanted the UK to be independent and be able to make its own laws again without EU influence. The remain voters believed it was more beneficial for the UK trade, businesses and the economy to be part of the EU.

What has happened so far?

Undoing nearly 50 years of economic integration was never going to be easy.

Since the referendum in 2016, there have been ongoing debates, discussions and negotiations between the UK and the other EU countries.

But what appears to have caused the greatest setback has been the political debate and disruption within the UK government itself. The governing Conservatives and the Labour opposition cannot agree over what to do, leaving Parliament so politically gridlocked that there is currently no plan in place.

British Prime Minister Theresa May is due to return to Parliament with a revised proposal, which will be put to the vote. What happens from here is uncertain. The outcome could be a ‘hard’ or ‘soft’ Brexit, a delay, another referendum, a renegotiation, or even an election.

What could happen if the UK leaves without a deal?

The Bank of England has produced a number of scenarios to estimate what that might look like, and they don't bode well for the UK.

Brexit Infographic

Source: Bank of England - possible hard Brexit scenarios

What effect will Brexit have on NZ?

In terms of the direct impact on New Zealand, trade is an area that the government will be monitoring closely. The UK represents less than three per cent of our total exports, while it may be a small market for us in aggregate, for exporters of meat, beverages and fruit, the UK is an important customer.

Brexit uncertainty has seen the UK sharemarket fall completely out of favour, while the pound is equally unloved. Against this backdrop, any positive developments could see investors reconsider their unfavourable view on UK shares and the currency, making it a potentially interesting (albeit higher risk) proposition for contrarian investors.

The upcoming period will be crucial for the UK, financial markets and the under-pressure British currency.

At this point, it feels like the only thing the UK can bank on with certainty, is more uncertainty.

We will be following closely the Brexit situation and will inform investing clients of any potential opportunities that arise.

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