While opinion polls indicated a tight race, the bookies and the City were quietly confident that the majority of the public would vote for stability as opposed to an uncertain future.
Media reports suggest £100bn has been wiped off the FTSE as the City reeled from the results, and Prime Minister David Cameron has already announced he will resign.
Analysts say there is a real chance other EU countries will follow suit with referenda, so we are potentially facing a very different market in the next couple of years.
Ratings agency Moody’s has warned that a prolonged period of policy uncertainty following the “leave” vote will weigh on the UK’s economic and financial performance.
With the negotiation period to withdraw from the EU taking as long as two years, the heightened uncertainty will likely dent investment inflows and confidence, weighing on the UK’s growth prospects – a credit negative for the sovereign and other UK debt issuers, said Moody’s.
“We expect that, over time, the UK and the EU would come to an arrangement to preserve most – but probably not all – of the current trading relationships. However, there are clear downside risks. Substantial new tariff or non-tariff barriers to trading goods and services would have an adverse impact on UK sectors that trade extensively with the EU market, such as automotives, manufacturing and food production.”
The good news is that much of packaging manufacture is for food which tends to be produced domestically, and this can also be true of other end markets like pharmaceutical.
Nicholas Mockett, head of packaging M&A, Moorgate Capital, said the result has shocked clients in both the financial community and major corporates, in the UK and throughout Europe.
“As the currency has depreciated immediately, UK exports will be more competitive. This may help industries such as Scotch Whisky which are major users of packaging. The opposite issue is the impact on raw materials, which are priced in other currencies, but most packaging companies have pass through agreements. While the authorities work out the mechanics of exit there will be a period of uncertainty and this may dampen investment.”
Stephen Cooper, head of industrial manufacturing at KPMG UK, said given the significance of trade with Europe and trade agreements negotiated through the EU, there are significant implications for the supply chain, such as the application of tariffs.
“On the jobs front, there are very real implications to the access to engineering talent,” he added. Manufacturers will need to consider their strategy – firstly in retaining their non-UK workforce, secondly in attracting non-UK based expertise and thirdly, more long term and one for the government to support, in developing talent on a much greater scale than they do currently.
He was also concerned about incoming investments in the UK. “Whether manufacturers will choose to locate or develop their operations in the UK, with the possibility of tariffs in place, remains to be seen and will likely be dependent on the upcoming negotiations with Europe. Once again Government action will be important to help ensure we remain an attractive location to invest both in manufacturing and other key contributors such as science and technology.”
He did however say there were possible opportunities for manufacturers. “A drop in the value of Sterling could make the UK a magnet for trade, and the need to reshape trade policy may result in quicker decision making, and reduced red tape.”
According to Phil Dalton, head of regulatory at Sun Branding Solutions, the initial impact of the vote on legal requirements will be limited – although much of the content of consumer goods legislation comes from the EU it is all enforced by virtue of UK Regulations.
“These UK Regulations are not affected by the decision. Longer term (years rather than months) there will probably be some divergence from current EU law but in the short term there will be no change and no immediate effects therefore on the labelling rules that business must comply with. It is unlikely that consumer legislation (including food labelling) will be a priority for change by the UK Government once the dust of the decision has settled.”
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