When the U.K. voted to leave the European Union on June 23, shockwaves reverberated around the world’s financial markets. Stock markets tumbled overnight, the pound plummeted, the FTSE 100 Index of leading U.K. shares dropped off a cliff. It seemed that prophecies of financial Armageddon had come home to roost.
Fast-forward six months, and despite all the hot air, nothing much has happened. Stock markets have recovered and the FTSE 100 is trading at higher levels than before the referendum. The pound has fallen, but that only served to boost month-on-month exports by £800 million in July, as British goods became cheaper – although the cost of imported raw materials and consumer goods will rise.
New British Prime Minister Theresa May reaffirmed that she still intends to trigger Article 50, the process for leaving the EU, by the end of March 2017, despite the recent decision by the U.K. High Court that the referendum result must be ratified by parliament.
However, it may not be so easy. While MPs in the House of Commons, most of whom are pro-EU, have vowed to respect the referendum result, some may seize the chance to demand continued membership of the Single Market as the price for their vote. The legislation could also be held up in the House of Lords for up to a year. The government has appealed the verdict to the Supreme Court, and a decision was awaited at the time of going to press.
Only when Article 50 has been triggered will we really see how Brexit plays out during the two-year mandatory period in which everything is decided. There are so many unknowns, such as trade agreements that Britain may have to negotiate, and customs procedures not only with the EU but Ireland, with which it shares a land border.
So should businesses be alarmed – and what can they do to prepare? In particular, how can they safeguard their supply chains from any possible downside?
“The good news, unlike many supply chain events – like a volcano disrupting air traffic or an earthquake destroying infrastructure – is that we have over two years’ notice of the change,” says Professor Richard Wilding, Chair of Supply Chain Strategy at Cranfield School of Management. “Do your scenario planning and understand how susceptible to impact your supply chain is – you may be pleasantly surprised.
“It’s a massive change and people need to plan for that, but equally this is a serious opportunity. I would argue that a lot of things that have been taking place in the last 15-20 years may not be the most efficient way of doing things, so it gives organizations the opportunities to really reflect on the right way of doing things.”
U.K. political debate is now focused on discussions as to whether there should be a “soft” Brexit – staying in the Single Market, or a “hard Brexit – leaving the Single Market. However, it is much more complex than that. Rather like an ice-cream parlor, there are four possible scenarios that could form the basis of the U.K.’s relationship with Europe post-Brexit, but each with a number of different flavors that could be added: