Will the UK collapse if Brexit happens?

Let’s play contrarian. The most prominent assumption is that Brexit will be negative and remaining in the EU will be positive. That assumption isn’t necessarily wrong but it’s not necessarily right either.

Let’s assume that it happens. A UK exit will probably put off international investors who see the UK as a manufacturing base for the wider Europe. In particular, car manufacturers which are now producing cars in record numbers in the UK.

But the fact that the Pound will weaken in the run-up to the June referendum has implications for UK-based companies that export goods to the rest of the world.

                  Source: ONS, 10 Mar

The above chart shows the historical balance of trade for the UK, broken down into EU and non-EU imports & exports. Note the increase in exports to non-EU and increase in imports from EU countries since 2001. Given that the UK will have to re-negotiate its trade relationships with EU countries after a Brexit, it will become much easier for the UK’s exporters to re-focus their efforts onto non-EU countries with which the UK already has solid trade agreements.

This would no doubt include high-growth emerging markets at the expense of a stagnant European Union, which is ultimately good for those businesses.

Risk off in the run up?

In reality, the UK 100 has limited exposure to the Euro and Europe. It does, however, react strongly to wider market sentiment. That’s why 200 UK business leaders, including many UK 100 bosses, signed a letter in late February pleading with the British public to vote to stay in the EU. Does this mean those people think their companies will suffer in the event of a Brexit? Could it also mean that shares in those companies may move south as anticipation, uncertainty and fear builds in the run-up to June? An account that allows you to easily short sell could be a godsend if that happens.