The impact to the economy is believed to already be many times the value of the UK’s contribution to the EU Budget.
Chancellor George Osborne says that companies have already started curbing investments following the decision to leave the European Union. Whilst he may well be right, no data has been produced confirming this yet.
Reliable figures will not be available for some time, as growth figures for March to June will be out on 27 July.
So what has happened that we know about so far?
Credit ratings
The ratings agencies Fitch and S&P have downgraded the UK’s credit rating which means they are of the opinion that lending money to the UK government is less safe than it was last week.
You would expect that to mean the government would have to pay more to borrow money – the Office for Budget Responsibility says that an extra one percentage point on the government’s cost of borrowing would cost the exchequer an extra £8bn in 2019-20.
But in fact, what has happened is that the yield, or return, on government bonds (which is a good indicator of the interest rate the government would have to pay to borrow money) has fallen, because in uncertain times people look for relatively safe investments, such as government bonds.
So given the evidence so far, the interest paid on gilts (UK government bonds) will fall, saving the government money, although it is also likely that inflation will rise, which will increase the amount the government has to pay on loans linked to the inflation rate.
Source: BBC Business
Only in the next few months will we start to see a clear picture of how the economy will be affected, and perhaps then we will be able to understand and forecast the longer term ramifications.
We will of course be interested to see how these in turn impact SMEs, the soul of the UK economy, and in particular whether corporate and personal insolvencies increase as a consequence.
At TH Financial Recovery we handle both informal and formal insolvency work, including:
Business Assessment and Restructuring, New Funding Options, Creditor negotiation and time to pay arrangements, Company and Individual Voluntary Arrangements (CVAs & IVAs), Administration, Liquidation, Bankruptcy.