“In the short term, the thick fog of uncertainty will make it hard for businesses to plan beyond the immediate horizon, while the price of a journey with yet unknown destination will take a heavy toll on the economy. We could see UK GDP growth, at a minimum, 0.5% to 1.5% lower on average than if the vote had gone the other way.
“In the longer term, a lot will depend on the path the UK succeeds to crave for itself whether it chooses to sail the seas alone or manages to join a flotilla of like-minded others to make its prospects stronger. However, the economic impact will be significant under most outcomes, with UK GDP potentially 4% to 6% lower by 2031 than if the UK voted to remain in the EU.
“Businesses need to reassess priorities and adjust for fresh realities in terms of new tariffs and other trade restrictions, pressures on wages and labour availability, and a deterioration in public finances.”
Business owners and entrepreneurs will see the sun through the clouds on BREXIT, says KPMG Enterprise
Commenting on the EU referendum result, Ben McDonald, Head of KPMG Enterprise in the UK, said: “Business owners have woken up to a new era this morning and will need time to assess the implications of the vote to leave the EU. However, entrepreneurs are a resilient group and have the agility to adapt to any new landscape.
“As the dust settles and the landscape becomes clearer, privately owned businesses and entrepreneurs will come in to their own,” continues McDonald. “The vote to leave the EU heralds a period of change while the exit is negotiated and new terms are agreed for cross border trade and there may be issues with investment and funding in the short term, but business owners are naturally positive and they are likely to see the sun through the clouds quicker than most.
“I spent Thursday with the team at Entrepreneurial Spark in Glasgow, discussing how we together support the growth businesses of the future. These companies are typically tenacious and are likely to step up to the plate to take on the new challenges they will now face.
“We have been working with our clients, large and small, up and down the country, as well as our own people to prepare for any scenario. KPMG will continue to support them in the days, weeks and months ahead.”
The impact of EU vote on struggling businesses
Blair Nimmo, Head of Restructuring for KPMG in the UK, said: “The vast majority of UK companies will navigate the uncertain economic waters successfully. However, for a small number of businesses, heavy turbulence in the capital markets and the knock-on impact on liquidity could leave them in a fairly perilous position. Indeed, we have seen examples in the recent past of companies entering into insolvency as a direct result of such market volatility, so companies absolutely must be on the front foot and ready to take action over the coming days and weeks if they are particularly vulnerable.
“Ultimately, the key to good decisions over the coming weeks and months will be a calm and measured consideration of the facts as they become known over time.”
Price drops and supply issues ahead in housing market
Jan Crosby, head of housing at KPMG UK, comments on how the UK referendum result will affect the country’s housing market.
“As we enter a new phase of uncertainty following the UK’s vote to leave the EU, it is very likely people will put big decisions on hold, and one of the biggest decisions people ever make is a house purchase. This means we can expect short term transaction volumes to decrease and to stay deflated for some time – perhaps until next spring. While we may not notice much of a change over summer, given the traditional hiatus in the housing market, the usual pick up in autumn may not materialise.
“However, given there is always going to be underlying demand for housing, and assuming there is some economic stabilisation in the next six to nine months, we can expect more normality to return in the spring, subject to underlying confidence and conditions. London demand may be hit for longer, albeit it will recover given its ‘global city’ status in or out of the EU.
“The impact on house prices really depends on the house builders’ reaction. It is likely there will be a price drop in the order of 5% in regional UK, possibly slightly more in London, but we are most likely to see a drop in the growth in asking prices rather than pricing, which will likely change less. If general economic volatility is high there risks being a larger price adjustment caused by price cutting, creating a moderate downward spiral of pricing. And this will be worse if immigration inflows are materially reversed.
“Looking at supply, medium term things could be problematic - given that sites take many years to develop, any mothballing and reduction in supply by house builders will impact and make the underlying demand/supply imbalance worse. Added to that, any labour constraints brought in could reduce the availability of foreign workers on construction sites – currently a relatively large source of labour for the industry – again slowing the rate of build and therefore supply.”
Leisure sector concerned as UK exit likely to impact on consumer confidence
Will Hawkley, UK head of leisure, KPMG UK, commented on the result: “Today’s decision to leave the EU is likely to cause CEOs within the leisure and hospitality sector a great deal of uncertainty and concern. Not only are there vast numbers of EU nationals working in the hospitality sector, but EU supplier and commercial contracts will need to be reviewed, and there will also be concerns over foreign visitor numbers within the industry. All of these factors could have a material impact on operations and revenues.
“On an economic level however, it’s fair to predict that today’s result will probably impact consumer confidence, driving down discretionary spend on leisure in the short to medium term while consumers evaluate the full impact of what the UK’s exit from the EU means for them and their wallets.”
The impact on pension schemes and pension savers
Stewart Hastie, Pensions Partner, KPMG on the impact on schemes: "Now we have the certainty of a Brexit vote, the uncertainty for UK pension deficits begins in earnest. The U.K.'s 6,000 private sector DB schemes covering £1.6 trillion of pensions obligations will be in for a rough ride hit with the prospect of higher inflation, and an expected fall off in pension asset values over the next couple of years. Long end government bond yields will likely stay stubbornly low keeping pension liability values high and meaning pension deficits are likely to increase and be more volatile. The PPF index at the end of May already showed 4 in every 5 schemes were underfunded with an aggregate deficit of £320 billion near all time highs.
“With some 2,000 schemes due to have a funding review in the next 12 months UK businesses will be under pressure to divert cash to shore up historic pension liabilities.”
David Fairs, Partner, KPMG on the impact on pension savers: “As the UK votes for Brexit, those expecting to retire shortly will find a volatile backdrop that will make it difficult to plan for retirement in the short term. Deferring retirement until markets stabilise might be a sensible decision although there might well be short term opportunities to bag a bargain in volatile markets if interest rates rise and they have overseas holdings.
“Those saving for retirement might now need to rethink their investment strategy as the pound adjusts. Overseas investments might appear expensive in the short term. In the longer term, the challenge of whether the UK will grow faster or slower, will be a conundrum. With a falling pound, a higher rate of inflation would be expected eroding the purchasing power of pensions in payment because most individuals shun purchasing inflation protection. Although those who have a public sector pension will be much better protected as their pensions are largely inflation protected.
“Pensions are generally long term considerations and so individuals should not be startled by short term volatility.”
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