While the world’s political pundits and financial analysts expressed a deep gasp at the results of the recent Brexit vote, many are now taking a breath. While the early reactions were dire enough to make one feel Armageddon was upon the world, things are slowly settling down into a more realistic process of evaluation
Differing Impacts for Different Markets and Segments
While there are many questions, the simple reality is that the overall impact of Brexit will work itself out very differently on both macro and micro levels. The full ramifications won’t be seen for years. For example, there is a potential for very significant issues developing in the remaining 27 EU countries if the “leave bug” bites more members, a real concern for many.
On the other hand, the average owner of a small business in the United States may see very little or no discernible direct impact. On a large scale, the manner in which Brexit affects global and U.S. interest rates and commodity prices could be a factor for many small businesses.
Many shaken investors are now moving funds to what are called safe haven assets, such as gold and silver. Any companies that use these precious metals or similar commodities as a part of production may see more price increases on top of the current 5% to 20% since Brexit. If there are more defections in the EU or member nations, this effect will be even greater.
The Cost of Capital
Access to financing and working capital is always a significant issue for growing small businesses. While the Fed tried to start a program of raising the central bank rate charged banks in Q4 2015, it now appears the historically low rates will remain. In fact, there has even been discussion of the possibility of implementing negative interest rates.
Banks and other financial institutions must lend money to make the returns and profits they seek, and negative rates would spur them to lend even more aggressively. The near-term impact of Brexit on the financing costs for small businesses is two-fold. It should keep rates low for at least through the election, and it should facilitate more access to loans.
Local or Global?
Of course, for small businesses involved in import or sales to large global companies, there may be more immediate Brexit consequences. The U.S. dollar is now much stronger against the pound, and there is uncertainty concerning how trading between the UK and EU will be affected over both the short and long-term.
Larger global firms will have to spend a great deal of time and resources sorting out the new environment and such uncertainty may delay purchasing and expansion plans. The trickle-down effect of these delays could cause some problems for a number of smaller businesses.
As with any change in the business environment, there are definitely some winners while others lose. Law firms, consultants, and firms with large sales in the U.S. will benefit from the added business and shift in exchange rates.
Brexit’s final outcome is unknown, but business now has a new word to add to its vocabulary to describe change and uncertainty.