The Impact of Brexit on the Insurance industry and UK construction
As the referendum results filtered through on the morning of Friday 24th June 2016, it became quickly apparent that the UK would be entering a period of uncertainty for the near future.
When the markets opened on that morning, the FTSE plummeted as investors feared a long-term downturn, large insurance firms being no exception. Markets around the world also took a hit and the pound fell strongly against the dollar.
But as UK businesses and analysts begin to digest the possibilities, now nearly a month on, it seems that a period of stability is with us and a lot of positive news is beginning to appear. Stiff British resolve might be surfacing.
With economic turmoil in full swing, it was time for political turmoil; however, in new PM Theresa May and chancellor, Philip Hammond, the markets have reacted positively. Those key appointments are widely viewed as safe, conservative and trusted. The campaigners for Leave have some key appointments, notably David Davis to lead Brexit, and Boris Johnson, as Foreign Secretary. And so the fear that a long, protracted period of stagnation with key political figures to be appointed has not happened. We’re all able to move on relatively swiftly.
So what for the insurance and construction industries?
Many of the biggest insurance companies in the UK have a significant amount of integration with the EU and a UK breakaway from the EU is going to impact the way the UK does business. However, it’s important to remember that currently we are still a member of the EU, and will be so for at least another two years – and likely beyond – whilst the process of triggering Article 50 is considered. Lloyds, the London-based insurance market, is expecting that the UK will maintain its access to the single market and the passporting rights it currently operates under. Trade with the EU accounted for 11% of Gross Written Premium for Lloyds in 2015. And whilst we remain a member of the EU, all policies retain compliance with the rules, and normal procedures. The impact of Brexit is perhaps on hold, whilst details are being worked through. That means business as usual, for now.
At the beginning of the year, Smith & Williamson surveyed property and construction executives. Only 15 per cent were in favour of Brexit. Further analysis of the survey results suggested that access to labour from Europe being one of the significant concerns of the executives. The longer term forecast isn’t hugely encouraging, as the UK breaks away from the EU, but there has been a lot of positive news, particularly regarding the aftershock expected from Brexit. Although the FTSE lost a lot of value and the pound weakened against the dollar, a lot of ground has been regained. There was no emergency budget from the government as was predicted, and we have some political stability in the medium-term. The Bank of England didn’t feel the need to reduce interest rates, and many house price forecasts remain strong.
In essence, some of the pre-Brexit warnings have surfaced, particularly on that Friday after the referendum. The markets reacted with shock. But the UK has dealt with the initial shock and is showing typical resilience in getting on with the job, and trying to shape a better trading future with the EU.