Features

What to expect if we remain in the EU

All ready for a no-deal exit? Good. But it’s not the only outcome you had better brace yourself for, says Matthew Lynn.

Pro-remain protester © Alamy

Remain may yet win

Just about every company at least you would hope has by now put in place plans for a no-deal exit from the EU. But now there is something else argh! they have to plan for as well. Revoke and remain. The Liberal Democrats this week committed to revoking Article 50, cancelling the referendum result and staying in the EU (see page 8). The odds are not high that they will win the power to do this, but a Lib Dem-led or "national unity" government committed to it is not exactly inconceivable either. You might think business doesn't need to plan for that that it is just the status quo and everything will carry on as before. But in reality remaining will have a big impact. This is what businesses must prepare for.

1. A raft of new laws

While we have been having an agonising debate about our departure, the EU itself has changed. It has introduced a raft of new environmental policies and is moving towards much closer harmonisation of tax rates. Takeovers are being controlled more tightly and a new fund is being created to invest in strategic industries. The UK will have to be part of that and companies will find themselves subject to all kinds of laws they had assumed wouldn't apply to them.

2. A surge of immigrants

There has been a significant drop in the number of young Europeans coming to work in the UK, especially from countries such as Poland and Hungary. Understandably, they were nervous about coming here when their status was so uncertain. But a Britain that has committed itself to remaining will suddenly be a lot more attractive. After all, the UK still creates a lot more jobs than any other major European economy and wages have been rising. With more immigrants, the labour market will start to look very different.

3. A wave of takeovers

We know that fund managers around the world have kept well away from British equities and, a few big deals such as the Hong Kong bid for the London Stock Exchange aside, global companies haven't been interested in buying British business. Again, that was completely understandable. Who wants to invest when no one had any idea when we would leave the EU or on what terms? There are better things to do with your money. The result? The UK is cheap compared with other major markets. If the threat of leaving evaporated, lots of money would suddenly go into the FTSE and there would be a wave of bids and deals.

4. A rise in interest rates

With growth positive, employment at record levels and with real wages growing at the fastest rate since the financial crash of 2008, there is no real reason for the Bank of England to hold rates down at "emergency" levels. Except for Brexit, of course. Logically, if that was taken off the table, then the Bank should start putting rates up again. With the global economy slowing, it might not happen right away. But it would happen quicker than if we were leaving.

5. Ever-closer union

Finally, if Britain did resolve to remain, then as a country it would be far more committed to the EU than it has ever been in the past. If we do stay, then we might as well commit to pooling sovereignty with the rest of the union, and that would mean signing up to the euro. It might take a while for our economy to converge, but it would be inevitable sooner or later.

Of course, the country would still be bitterly split on the European issue. The main opposition would either be the Brexit Party or the Conservatives, or an alliance of the two, committed to taking us out as soon as possible. The result of the referendum would not be quickly forgotten. Business would still have to live with a lot of uncertainty. But it would get used to that. The important point is this: remaining is not as disruptive as leaving. There won't be chaos at the ports, or any dramatic shortages. But it is not really the status quo either. Whichever way the UK goes, change over the next few years is certain.

Recommended

The charts that matter: more pain for goldbugs
Economy

The charts that matter: more pain for goldbugs

Gold investors saw more disappointment this week as the yellow metal took a tumble. Here’s what’s happened to the charts that matter most to the globa…
18 Sep 2021
The new social-care levy: an unfair tax that protects the “assetocracy”
National Insurance

The new social-care levy: an unfair tax that protects the “assetocracy”

The government’s regressive social-care levy will make Britain’s tax system even more complex. Root-and-branch reform is long overdue.
18 Sep 2021
With the right political will, inflation can be defeated
Inflation

With the right political will, inflation can be defeated

Governments and central banks can easily control inflation, says Merryn Somerset Webb – they just need the will.
17 Sep 2021
Why are energy prices going up so much?
Energy

Why are energy prices going up so much?

UK energy prices are going through the roof, with electricity the most expensive in Europe and gas at its highest for 13 years. Saloni Sardana explain…
16 Sep 2021

Most Popular

The times may be changing, but don’t change how you invest
Small cap stocks

The times may be changing, but don’t change how you invest

We are living in strange times. But the basics of investing remain the same: buy fairly-priced stocks that can provide an income. And there are few be…
13 Sep 2021
Two shipping funds to buy for steady income
Investment trusts

Two shipping funds to buy for steady income

Returns from owning ships are volatile, but these two investment trusts are trying to make the sector less risky.
7 Sep 2021
Should investors be worried about stagflation?
US Economy

Should investors be worried about stagflation?

The latest US employment data has raised the ugly spectre of “stagflation” – weak growth and high inflation. John Stepek looks at what’s going on and …
6 Sep 2021