Three issues dominated much of the Brexit referendum debate: trade, investment and migration; and they will continue to dominate during the exit negotiations. Uncertainty is the key word when analysing the outlook for the UK, with much depending on the UK government’s ability to negotiate trade agreements in a timely manner. Here we investigate the post-referendum economic landscape and explore the potential impact on the UK of a disorderly exit, as well as the impact on key economic indicators should the UK have a change of heart and remain in the EU.

1. THE UK POST-REFERENDUM
July 2016
Sarah Boumphrey
Global Lead – Economies and Consumers

2. INTRODUCTION
THE POST-REFERENDUM WORLD
EUROMONITOR’S MACRO MODEL
IMPACT ON CONSUMER MARKETS
CONCLUSION

3. © Euromonitor International PASSPORT 3ECONOMIES AND CONSUMERS
Brexit on the agenda
INTRODUCTION
• The unprecedented nature
of a member state leaving
the European Union makes
assessing its impact
extremely difficult and open
to interpretation. “Unknown
unknowns” are a major
challenge.
• Article 50 of the Treaty of the European Union provides for a two-year
exit process. Negotiations would be needed on the technicalities of
withdrawal and the future relationship of the EU and the UK.
• When the UK government will trigger Article 50 is still unclear

4. © Euromonitor International PASSPORT 4ECONOMIES AND CONSUMERS
Three issues dominated much of the referendum debate: trade,
investment and migration.
Taken as a whole, the EU is the UK’s largest trade partner. Exports to the
EU accounted for 48.8% of the UK’s total exports.
FDI is an important component of UK economic growth, although it has so
far failed to regain pre-recession highs. The UK received 28% of EU
inflows of FDI in 2015.
Migration is responsible for roughly half of population growth each year.
Since 2010, around 40% of migration to the UK has been from EU
countries.
0
350
700
1980 1985 1990 1995 2000 2005 2010 2015
US$billions
EU Non-EU
How much does the EU matter to the UK?
INTRODUCTION
UK Exports: 1980-2015

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The UK plays a significant role in the EU, both
economically and demographically. In 2015:
The UK was the EU’s 2nd largest economy,
contributing 35% of the EU’s economic growth
between 2010 and 2015.
The UK was the EU’s largest consumer
market, and was responsible for 1-in-5 $ spent
in the EU; responsible for 56% of growth in EU
consumer expenditure since 2010.
The UK was the EU’s 5th largest exporter and
also the destination for 7.4% of EU exports.
It was also home to 12.8% of the bloc’s
population and was the destination for 11.5% of
all EU migrants in 2013.
0 50 100
Exports
Population
GDP
Consumer
Expenditure
FDI Inflows
% of total EU
UK Rest of EU
90
100
110
2010 2015
2010=100
EU UK
How much does the UK matter to the EU?
INTRODUCTION
Real Consumer Expenditure
Growth: 2010-2015
UK’s Contribution to the EU: 2015

6. INTRODUCTION
THE POST-REFERENDUM WORLD
EUROMONITOR’S MACRO MODEL
IMPACT ON CONSUMER MARKETS
CONCLUSION

7. © Euromonitor International PASSPORT 7ECONOMIES AND CONSUMERS
Revised figures take into account:
Higher trade barriers, restrictions
on immigrant labour and
relocation of some financial
services reduce long-term UK
GDP by around 2.5%.
Lower growth expectations and
higher uncertainty lead to a
slowdown.
The Bank of England will loosen
monetary policy and cut interest
rates.
-5.0
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
2009 2015 2021
Revised Pre-Referendum
UK Economic Data Revised Downwards
THE POST-REFERENDUM WORLD
UK’s Real GDP Growth: 2009-2026

8. © Euromonitor International PASSPORT 8ECONOMIES AND CONSUMERS
Declining
business and
consumer
confidence
Weakening
investment
Widening of the
current account
deficit
Sterling
depreciation
Price pressures
Downwards
pressure on
consumer
expenditure
Summary of economic risks facing the UK
THE POST-REFERENDUM WORLD

9. © Euromonitor International PASSPORT 9ECONOMIES AND CONSUMERS
Relaxation of legislation
New trade agreements
outside of EU should be
more straight-forward to
negotiate
Savings made on transfers
to the EU
Renewed demands for a Scottish
referendum
Isolation on global stage and poor
relations with European
neighbours
Lower migration inflows leading to
slower labour force growth
Political uncertainty within the UK
– all major parties were Remain
Lack of exit strategy - how the UK
wants its relationship with the EU
to be and when to trigger Article 50
Opportunities
Threats
Once the dust has settled the outcome for the UK is uncertain
THE POST-REFERENDUM WORLD

10. © Euromonitor International PASSPORT 10ECONOMIES AND CONSUMERS
Damage to the post-war European Ideal
Political contagion
Shift in the balance of power
Loss of major net contributor to the budget
Smaller voice on the global stage
Damage to EU-UK trade
Increased competition from the UK
The EU itself faces political and economic risks
THE POST-REFERENDUM WORLD

11. © Euromonitor International PASSPORT 11ECONOMIES AND CONSUMERS
• Full access to single market
• Free movement of people
Norway or Switzerland-
style relationship
• Tariff-free access to single market on goods
• Common external tariff
Turkish-style customs
union
• Negotiation of bilateral treaty
• No/limited free movement of people
Canada-style
relationship
Disorderly exit
No Brexit
The UK’s options
THE POST-REFERENDUM WORLD
• No agreement reached by 2 year deadline
• UK reverts to WTO rules
• UK holds a second referendum
• Or a general election is held on basis of
whether to trigger Article 50
Or a unique deal with features of some of the above

12. INTRODUCTION
THE POST-REFERENDUM WORLD
EUROMONITOR’S MACRO MODEL
IMPACT ON CONSUMER MARKETS
CONCLUSION

13. © Euromonitor International PASSPORT 13ECONOMIES AND CONSUMERS
The UK triggers article 50 by early 2017, starting negotiations
to exit the EU.
 Negotiations hit irreconcilable differences over free trade
and free movement of people.
 The UK leaves the EU in 2019 without reaching an
agreement. Trade relations with the EU default to WTO
conditions with some limited bilateral agreements reached
afterwards.
 Financial services in the UK lose their EU passport.
 Heightened uncertainty and pessimism on the outcome of
negotiations amplifies the short term impact of Brexit.
 Together with the negative impact on labour productivity
and future growth expectations of lower trade volumes,
this leads to a sharp decline in UK GDP.
 Probability: 30-40%
Brexit scenarios: Disorderly exit
EUROMONITOR’S MACRO MODEL

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Impact of disorderly exit on key UK indicators
EUROMONITOR’S MACRO MODEL
• 5% cumulative impact on
real GDP growth over 5
years
• Unemployment to reach
6.9%, compared to 6.1% in
the baseline forecast
• Inflation to peak at 4.0% in
2018
• Interest rates to fall into
negative territory in 2017 and
2018

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Brexit scenarios: No Brexit
EUROMONITOR’S MACRO MODEL
 The conservative party leadership
starts having doubts on triggering
article 50 after seeing the negative
short-term impact of Brexit uncertainty.
 Fears of triggering a new Scottish
independence referendum and
reigniting tensions in Northern Ireland
also cause politicians to reconsider
exiting the EU.
 Since the Brexit referendum is non-
binding, the new prime minister puts
the declaration of exit from the EU to a
parliamentary vote. The majority of
MP’s reject Brexit.
 This leads to a political crisis and a
second referendum, which the Remain
campaign wins.
 Probability: 5-15%

16. © Euromonitor International PASSPORT 16ECONOMIES AND CONSUMERS
Impact of No Brexit on key UK indicators
EUROMONITOR’S MACRO MODEL
• UK real GDP growth would
see a strong bounce back
• Unemployment would
remain under 6%
• Inflation would decelerate
sharply
• Interest rates will gradually
be raised

17. INTRODUCTION
THE POST-REFERENDUM WORLD
EUROMONITOR’S MACRO MODEL
IMPACT ON CONSUMER MARKETS
CONCLUSION

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Consumer confidence
Currency
Labour force
Relocation
Access to EU markets
Uncertainty
The main considerations for the consumer goods industry
IMPACT ON CONSUMER MARKETS
Although it will be dampened, consumer spending might not be the main
challenge for the consumer goods industry.
The foremost issues could be operational and strategic.

19. © Euromonitor International PASSPORT 19ECONOMIES AND CONSUMERS
Which categories are seeing the largest impact or
conversely the least impact?
Which categories are big-ticket items? Or reliant on the
real estate sector?
Which categories are dependent on tourism?
How did the category perform in the UK during other
periods of weak confidence?
Are there options for trading down in the category or
from others?
At the category level
IMPACT ON CONSUMER MARKETS

20. © Euromonitor International PASSPORT 20ECONOMIES AND CONSUMERS
Which companies are most focused on the categories
our IFMs show are most affected?
Which companies have a large cost base outside of the
UK but a large customer base in the UK? Or vice versa?
Which companies manufacture in the UK mainly for
export?
Which companies gain a large share of revenues in the
UK?
Which companies have large market share in the most
impacted categories?
At the company level
IMPACT ON CONSUMER MARKETS

21. © Euromonitor International PASSPORT 21ECONOMIES AND CONSUMERS
Discretionary v essential –
price and income as a
driver
Are there stand-out
performers?
Are there exceptions within
categories?
How different will the total
market be by 2020 with a
no Brexit scenario? Or with
a disorderly Brexit?
How does the industry
compare to others?
Industry Forecasts
IMPACT ON CONSUMER MARKETS

22. INTRODUCTION
THE POST-REFERENDUM WORLD
EUROMONITOR’S MACRO MODEL
IMPACT ON CONSUMER MARKETS
CONCLUSION

23. © Euromonitor International PASSPORT 23ECONOMIES AND CONSUMERS
Uncertainty is the key challenge with Brexit.
Our macro model shows the impact on the UK economy
to be a cumulative reduction in growth of 2.5% over five
years.
There are wider implication for the EU both in terms of its
economy and its future as an organisation.
Although it will be dampened, spending might not be the
main challenge for the consumer goods industry.
With an ageing population, the strength of the labour
market, could pose a longer term challenge across all
sectors.
All-in-all, UK economic growth will be dampened by a
Brexit but not to the same extent as the financial crisis.
A lot depends on exit negotiations and the UK’s ability to
negotiate trade deals in a timely manner.
Uncertainty is the key word
CONCLUSION

24. FOR FURTHER INSIGHT PLEASE CONTACT
Sarah Boumphrey
Global Lead – Economies and Consumers
sarah.boumphrey@euromonitor.com
@SarahBoumphrey