Since 23rd June 2016, the day that British voters changed the course of British history, there have been changes of momentous proportions, both politically and economically for the country. The greatest enemy of a prosperous economy is uncertainty, and Britain has plenty more of that to come.
The rebound of the FTSE – not quite what it seems
It is wrong to think that the rebound of the FTSE-100 this week indicates that all is back to normal in the business world. Part of the reason for the recovery is the growing belief that Article 50 (the mechanism to trigger the UK leaving the EU), will not be triggered for many months, if at all, by whoever ends up with the Prime Minister’s job. It is business as usual for the moment as the City tends to take a rather short-term view of such events.
However, the FTSE-250 (the next biggest listed UK companies below the leading index), is struggling. It is still 5% below the level it had reached on the day of the referendum. These companies are far more exposed to what is happening in the UK market, and with consumer spending down, they are under pressure.
The threat of recession
Is there a recession looming? According to John Van Reenen, director of the Centre for Economic Performance at the London School of Economics: "You get a rabbit-in-the-headlights phenomenon where businesses don't want to make new decisions, or new investments, because they are uncertain about the future. The immediate effect will be a lowering of investment activity, a lowering of hiring. There will an immediate slowdown of growth.
Sarah Lewis, a jobseeker looking for work in the IT sector stated that the amount of recruitment emails she has received since the vote has plummeted; “Businesses are just not hiring at the moment”. And she is not imagining things. After the result, the Institute of Directors (IoD) surveyed 1,000 of its members and found that a quarter planned to freeze recruitment and five percent claimed they were going to cut jobs.
According to many reports, the threat of recession is real, especially once Article 50 is triggered.
Earlier this week, Chancellor George Osborne publicly chose to forgo his cherished plan to run an absolute budget surplus by 2019-20, as the economy dealt with the economic shock of last week’s Brexit
The Chancellor has said the UK, “must be realistic about achieving a surplus by the end of the decade”.
The Independent reported that the economy is widely expected to slow down rapidly in the wake of last week's vote - and possibly enter another recession - which would hit tax revenues and make it impossible for the Government to hit surplus within four years, in the absence of further spending cuts or tax rises.
Industry’s ability to hire EU workers.
For the time being, the ability for EU citizens to work in the UK remains unchanged. Even after Article 50 is triggered, the status quo will continue because Britain will remain in the EU for two years, whist the ‘divorce
’ negotiations take place.
However, a huge amount of uncertainty remains. Industries such as construction and agriculture are well-known for relying on EU labour to meet demand. The rapidly growing technology sector and the City also rely on their fair share of talented, highly educated EU nationals to add value to their work force. And of course the NHS, who employees
a large number of EU citizen workers – what will happen to their ability to remain in the country long-term?
As with every question relating to Brexit
at the moment, no one knows for sure. If an Australian-style points system is introduced, then it will prove much harder for employers
to recruit labour from the EU, especially if the minimum salary requirement of £35,000 for Indefinite Leave to Remain
is applied to EU migrants as it is to migrants from outside the EU. This requirement makes it very difficult for UK employers
to justify the investment in training non-EU nationals if they are unable to pay the minimum salary required to retain them for more than five years.
May or Gove - who is more liberal?
There may be a few other hats in the ring, but let’s face it – the battle for the next Prime Minister is between Teresa May and Michael Gove. Neither could be described as warm and fuzzy on the subject of immigration
, but who could be described as the more liberal of the two?
The Home Secretary said that the benefits of mass migration were “close to zero”. Her tough stance on immigration
was made clear by the Home Office’s decision to print “Go Home” posters on advertising vans. This reflected Theresa May’s hard line on taking Syrian refugees, and the “chilling and bitter” message of her last Tory party conference speech when she claimed mass migration was threatening Britain’s cohesion. She is also the strongest supporter in the Cabinet for Britain to withdraw from the European Convention on human rights
Gove is widely seen as the brains behind leave. He played the immigration
card the hardest of the official leave campaign leaders, warning that Turkey (who experts agree are unlikely to join the EU in our lifetime) becoming a member of the EU would mean, “a direct and serious threat” to public services in the UK.
Employers need to encourage EU national employees
who are eligible for British citizenship
to apply for it as soon as possible. Alternatively, enquires about Permanent Residence
Cards should be made. By cementing EU workers’ residency status, employers
are protecting their organisation’s investment in the talent and skills of their work force.
Whatever happens regarding the leadership of the Tory party (not to mention the Opposition, which has also imploded under Brexit
), uncertainty will prevail for a long time. This will not help business or the economy. One day, our grandchildren may ask, “what were you thinking?”
Will any of us be able to provide a logical answer?