The United Kingdom’s departure from the European Union (EU) was a rude shock to the world. Like the majority of the UK, the US marketplace is also reeling from the decision made on June 23 – and is now feeling the rising concern as the pound (£) and markets dropped and then made an unsteady rise back up – but for how long?
What’s even worse is that it may take years for the world to know for sure the repercussions of this big step – as the United Kingdom continues to remain an EU member for at least two more years till new trade agreements are negotiated and all the legalities are put in proper order.
But while all of the chaos goes on around the world, businesses here need to stay abreast of any and all changes taking place due to Brexit. Adding to this thought, here are three points that US accountants must keep in mind:
1. Global capital markets are slowing down (for a short while) Due to an air of uncertainty, British businesses may put their investment plans on hold – an act which will definitely affect public finances. The economic growth, on the other hand, is expected to slow down and the risk of recession across Europe might increase.
These “dreadful possibilities” have already started weakening the global capital markets for an unfixed period of time. Moreover, real estate, automotive and financial services to name a few sectors have taken a hit because of Brexit as investors are pulling the plug from companies exposed to British capital markets.
What accountants working for US-based companies with a European clientele can do, is review company budgets and business plans to make effective demand and revenue forecasts – just to ensure security from any potential financial and employment-related risks.
2. Supply chain operations are going to become sluggish It is a given that future trade agreements between the United Kingdom and rest of the Europe are bound to change post Brexit. With a shift in tariffs and border control for exports of goods and services, British companies will be forced to rethink how they plan to serve customers without losing market to lower-cost suppliers from the EU.
With slower supply chain operations, accountants for US-based companies should analyze any third-party providers based in Europe – just to understand and assess the impact of heightened risk of pricing changes, new duties or taxes and changes in supply chain volume or speed.
3. The weaker the pound, the higher is commodity volatility risk Did you know pound (£) hit an all-time low against the US dollar in 31 years just a few days after Brexit happened? Even though it has subsequently gained some power, the pound is still relatively weaker against the dollar.
Till the time the British currency reaches its previous position in the market – accountants, working for US-based companies exposed to foreign currency or commodity, should review current hedging strategies. This is only to consider the increased volatility risk – given that commodities, such as oil priced in USD (which is the cost base for many European companies) is at risk for medium-term volatility.
Even if the long-term effect of Brexit can’t be felt immediately, there is no harm in being prepared for what can potentially go wrong in the future – at least in the financial and accounting sector.