Unfounded: Brexit Myths and Foreign Direct Investment
Four months into Britain’s separation from the European Union and the economic consequences, or the ‘bigger picture’, are still unfolding. Though it may be an exhausted topic for many, the concrete changes of the public’s decision are only just coming into effect. Discussion between various academics and entrepreneurs who attempted to get ahead of the pandemic, by guarding against the anticipated financial fallout, have since revised their positions. This article looks at the unfounded myths that arose amongst the unease and uncertainty surrounding Britain’s exit from the EU, with a particular focus on the property market and foreign direct investment (FDI).
According to market intelligence from Ludlowthompson, the number of overseas landlords investing in property in the UK reached a five-year high of 184,000. This marks an increase of 19% over this duration. The House of Commons publication measuring the revenue generated from foreign direct investment has shown a pattern in terms of investor sentiment. The highest level of FDI was reported in 2017 in the immediate aftermath of the Brexit referendum as many considered the opportunity to buy into the UK market as limited. The following steady decline over the next few years may also be interpreted as reflective of the caution surrounding the possibility of a no-deal Brexit. However, the figures for 2021 are forecast to record a significant uplift in FDI activity as it becomes apparent that the collapse of the property market was one of the unfounded myths arising from concerns born out of Brexit.
The introduction of visa applications for workers and overseas investors was feared to be a deterrent that would negate profitability in the UK property market. While the end of free movement within the EU may reduce labour market flexibility, the ending of arbitrary and damaging quotas on skilled workers from outside the EU has opened a new route for overseas investors and workers. The BNO visa availability provides a huge economic opportunity for Hong Kong investors to attain citizen rights through UK property investment and ownership, a factor that has already seen the influx of a magnitude of foreign direct investment in the residential sector.
The ever-increasing clarity as to the UK’s financial position in the aftermath of Brexit, has led to a renewed confidence in the UK’s economic position. The government have prepared to ensure a continuity in revenue from the international market and have signed a significant volume of trade agreements. At the time in which Britain withdrew from the EU, it had approximately 40 trade agreements spanning across 70 countries. In the short amount of time since then, the UK has ratified agreements with 63 of those. The sheer volume of new business that the UK have engaged in is monumental. It is also worth noting that the UK have entered into many Mutual Recognition Agreements for continuity and conformity on many products for export and import. This, in addition to the free trade deal between the UK and the EU which came into force on the first of this year also, will encourage advantageous trading without excessive tariffs or quotas across jurisdictional borders. The UK have also signed a deal with Japan on 22nd October 2020, the total value of trading relations between our two nations (imports and exports) was £31.6 billion in 2019, and 2% of the UK’s total trade. Further, the many concerns aired regarding the UK’s isolationist attitude have been disband by the magnitude of new revenue from trade agreements with a larger international market.
Another common myth was the inevitable dissolution of the British pound. With a gradual depreciation in its value, many voiced concerns that this was an indication of the pound becoming obsolete in the international market. Yet, in spite of fluctuations in value, Sterling currency has experienced stellar gains throughout the past couple of months and these have been accredited to a combination of the success of the vaccination programme, and the UK’s financial certainty following an agreement with Brussels for the withdrawal of the European Union. The Pound has risen to multi-month highs against both the Euro and Dollar and is the top performing G10 currency of 2021. On Thursday the 18th of March the pound reached an all-time high against the U.S. Dollar, achieving a rate of $1.42. The Pound versus the Euro has rallied by an impressive 4% in 2021. Furthermore, the CICB Capital Markets have forecast that the pound will enjoy a consistently stable value appreciation.
Those whom had held a somewhat critical and pessimistic view of the dramatic uplift to Sterling’s value at the start of 2021, have recently diverged from this position. Analysts at Bank of America, for instance, have noted a multi-faceted shift in sentiment towards the currency and UK assets in general and have since flagged the largest jump in real money flows that the UK has experienced in a decade.
The imminent operation of various freeport locations throughout the UK’s main trading ports will also entice and incentivise overseas investors and present more opportunities to capitalise on the UK’s commercial and residential market. Investor sentiment has increased exponentially as many diverge from a position of caution to one of pragmatic financial planning. A watchful eye is upon the government as the world watches to see how Britain will emerge from both the pandemic and the Brexit ordeal.