The days following Brexit were no doubt clouded with uncertainty for all – the overnight collapse of the pound, the drop in lending, the uncertainty about the ‘Brexit plan’ and its subsequent effect on profit margins. One certainly cannot deny the short-term impact and detrimental consequences that it has brought to businesses across the country and especially in the outward-looking global metropolis that is London. The key worry upon the brow of every business, small and large alike, is whether the political events of the last month represent a permanent shift in the financial and entrepreneurial climate or simply the temporary passing of a dark cloud.
The evidence suggests the perception amongst most hospitality operators is the latter. A survey recently conducted by EPOS of 500 small businesses in the hospitality industry now reveals that 64% remain optimistic about their business prospects outside the European Union, because of Brexit. The MCA also predicts that the restaurant market is expected to increase in turnover in 2016.
An analysis of the recent political events and the factors that will determine the future of the country supports this optimism. First, it must be stressed that the referendum referred to the European Union, not access to the single market. Britain may have made the decision to leave the political union, and as a result, the country will lose its seat in the council of ministers, its right to veto new EU legislation and its right to access the European parliament. However, as demonstrated by the members of the European Economic Area and the European Free Trade area, who continue to trade without tariffs and benefit from the free movement of labour, leaving the Union does not necessarily entail losing out on the single market. It is the single market that the success of UK’s business will ultimately rest on, particularly those who rely on imports from, or exports to, the continent. Access to the single market guarantees free trade and comes with strict conditions about allowing the free movement of labour, and all initial signs would suggest that this access will continue.
Secondly, it must be remembered that the decision to ‘leave’ with Brexit was carried out by the general public and supported by those outside London, particularly those living in disenfranchised cities in the North England or in rural areas. However, it is not the general public who will be negotiating the deal to exit, and the access to the ‘Single Market’ will be negotiated by a Parliament who was overwhelmingly in favour of ‘remain’ and more importantly by a Prime Minister and Chancellor who stated the ‘Single Market’ as their primary reason for backing staying in the union. In fact the incoming Chancellor Philip Hammond made it a point to stress that Britain would ‘negotiate access to the (trading) bloc’.
Politicians understand that over 40% of Britain’s exports are to the European Union (far higher than the next highest area, the US, at 18%), that trade to commonwealth countries is a million miles away from replacing European trade, and that access to the single market is vital for foreign investment. Most of all, they are constantly reminded of these facts by the lobbyists and large business interests whose success depends so dearly on the UK’s continued membership of the single market.
It should also be noted that the ‘remain’ vote won in 28 boroughs of the nation’s capital and carried a total of 2.2 million votes. There will therefore be significant pressure on ‘Number 10’, from both politicians and the London public alike, to come to an arrangement that can allow London to continue benefiting from free trade and the influx of talent from the rest of the continent. In fact the mayor of London, Sadiq Khan, immediately declared post-Brexit that he would strive to protect the rights of EU citizens in his city and also expressed his confidence that London would retain access to the single market one way or the other.
The immediate actions of the incoming Prime Minister, Theresa May, give cause for hope that the government will not look to take any rash action to break the economic ties that the UK and more profoundly London, depend so much on. She made it a point to meet her French and German counterparts before discussing the procedure of exiting the union; this would suggest that she wishes to have a concrete deal in place before the two-year process of exiting the political union (after article 50 is triggered) takes place. She also bought herself more time to negotiate by insisting that a deal would have to be agreed with the Scottish First Minister Nicola Sturgeon prior to initiating an exit. Chancellor Philip Hammond also suggested that the country would take a cautious approach to exiting by stating it could take up to four years to issue a suitable deal before which the United Kingdom would remain a member of the EU.
Yes, Brexit has had an immediate impact, and yes, now more than ever it is important for businesses to take a cautious approach, to seek advice from those with a proven track record of success, and be wary of high risk ideas. However, does this mean that London is closed for business? The evidence suggests not; by all estimations, the city will continue to thrive, and once the temporary cloud of uncertainty passes, businesses will have great long-term prospects in this fantastic city.