Time for Britain to Face Reality

Now is the time for Britain to face the reality of its decision to exit the EU, a process that will take a minimum of two years to materialise. In the interim, although Britain will continue to be subject to EU treaties and regulations, it will lose its decision-making powers.

The vote in favour of Brexit was followed by the resignation of Prime Minister Cameron and the task of exiting the EU will be carried out by his successor who will be in post by October 2016. The new government will have to undertake three acts simultaneously: negotiating a deal with the EU, forming new rules that will replace the EU’s rules, and signing new bilateral trade deals with other countries.

Brexit could have a negative or a positive impact. The uncertainty created due to the process could weaken business confidence and delay foreign direct investments in Britain, or it could help the country to expand trade relations with the rest of the world beyond the EU.

Immediately after the exit, Britain could go into recession as the value of its currency falls. However, the Governor of the Bank of England, Mark Carney, and the current Chancellor of the Exchequer, George Osborne, have made public statements intended to allay any such fears. They have sought to reassure the markets that contingency plans are in place, that they have the necessary financial resources and that they will take all steps to avert the threat of recession. Nevertheless, I do not think the incoming government can rule out the need for taxation to be increased sooner rather than later.

Much will depend upon which trading model Britain adopts:

a) the one adopted by Norway and Switzerland, whereby Britain will not be a part of the EU but will maintain free trade relations with it. However, this would entail the continuing of free immigration from the EU and acceptance of the EU’s business rules, destroying the very purpose of Britain’s exit from the club.

b) isolating itself from the EU and working independently. This would mean that common external tariffs would apply to Britain and hamper its trade with the EU.

What has already been made clear by EU leaders, is that, contrary to what the electorate was led to believe by Conservative leadership contender, Boris Johnson, during the referendum campaign, Britain will not be able to have its cake and eat it, so to speak. Free trade agreements with the EU are simply not available to countries unwilling to follow its rules - however "Great" they imagine themselves to be.

If Britain adopts the second model, foreign businesses that trade in the EU through their UK headquarters will be affected. And these businesses are likely to move fast, vacate the UK and look to set up offices in EU countries where they can continue to enjoy free trade with the EU.