Britain has voted to leave the EU, after the Leave campaign won 51.9% of votes in the referendum of 23 June. The process by which Britain will exit the EU and the character of future trade and financial relationships still need to be decided on. With the Brexit camp not showing any vision for the future, British politics are left in turmoil, adding to the uncertainty.

Impact on country risk

Consequently, the global economy and business confidence took a hit. In fact, the vote triggered significant turmoil across financial markets, with European markets hardest hit. The pound sterling is under pressure, down over 10% against the US dollar, while the euro lost 2%. Although markets started to calm down after the initial shock, it is expected for volatility to continue over the summer. The decline in the pound sterling will raise inflation while consumer confidence is under pressure and private investment plans are being disrupted. As a result of all this, the British economy is expected to enter into recession in the second half of 2016. Even though Credendo Group’s political risk classifications for the UK remain unchanged, the systemic commercial risk outlook did deteriorate.

Analyst: Louise Van Cauwenbergh, l.vancauwenbergh@credendogroup.com