Brexit: The Flight of Capital has Begun
The delay of a Brexit deal will cost the UK economy $81 billion in cancelled, delayed or lost investment, according to Barclays.
According to the ‘leave’ vote, Britain is about to embark on a future of worldwide free trade. The EU will be forced to deal with them because they’ll be so great at everything once the EU shackles are off. The rest of the world just can’t resist. But companies aren’t romantics. They don’t dream of an island nation showing Brussels what destiny looks like.
All over Britain there are manufacturing firms looking at their margins shrinking as sterling declines. There are banks wondering if it is worth staying in a country that won’t be able to clear euro-currency trades. Why stick around? Move to Berlin now and at least you know that your access to trillions in euro derivative trades won’t be interrupted.
UK investment collapsed by £15 billion between July and September. It is only the fifth time there has been a quarterly decline in UK investment since 1987. Bear in mind that this is happening before the Brexit has occurred.
There are the labour productivity effects, too. Lack of workers from Europe will hurt Britain’s ability to support retirees and the NHS. One important change going forward is the slowdown in labour supply; immigration has likely peaked in recent years and the Brexit might amplify that slowdown; an aging population will increasingly weigh on working population growth. So far, aging has been less of an issue in the UK than in some peer countries due to healthier demographics, but aging of the population is already subtracting from labour supply.
This is the future reality of Brexit: Less investment; fewer companies; and fewer workers for fewer jobs. The full force of the referendum decision has not been felt yet. But it is on its way.