On June 23, 2016, citizens of the United Kingdom voted to leave the European Union. Immediately following the final election results, stock markets across the world sharply declined. The initial drop in the pound, British government bonds, and global stock markets were severe but not catastrophic. The Bank of England reassured investors that it would cover any temporary cash outflow in an effort to stabilize financial markets. So what exactly does the Brexit mean for U.S. Businesses? Read on to learn more.
How U.S. Businesses May Be Impacted by Brexit
Most U.S. business professionals are wondering how the Brexit may impact them. There currently is much speculation of the long lasting impact the Brexit will have on the U.S. and global economy. Below is an overview of 3 key impacts the Brexit will likely have on U.S. businesses and consumers.
- Volatile Markets Will Impact U.S. Growth
American consumers make up the majority of U.S. economic activity, and consumers tend to spend more money on goods and services when they feel good about where the country is heading. Conversely, in a down market, Americans are hesitant to purchase homes and cars. As mentioned above, Britain’s exit from the EU temporarily shook the stock markets. If market volatility continues for months, it will likely result in American business owners and consumers reconsidering their financial plans, and keeping more of their money in their pockets.
In addition, Brexit has triggered a stronger U.S. dollar. While that may sound like good news, remember that a stronger dollar hurts U.S. trade because it impacts U.S. businesses that sell products overseas. Products “Made In USA” will become more expensive abroad as the value of the dollar increases. Google and Apple and other tech giants could feel the sting when Britons (and Euros) can’t afford their products. Nevertheless, a stronger dollar will make imports cheaper for U.S. consumers. Prices of British imports should fall to try attract more consumers (and their cash) to those products.
- Brexit May Impact Travel Between the U.K and Florida
Crazy international markets will also have impact travel between the U.S. and Britain. Last year, about 1,700,000 visitors came from the UK to the Sunshine State. This equates to about 40% of the European visitors that Florida annually receives. With financial uncertainty looming in Britain, UK residents may be less inclined to travel to Florida over the next year. If the Brits are financially worried about their future, and put off their travel plans, Florida’s tourism economy could take a dip too.
It will be cheaper however for U.S. business professionals to travel to Britain. With the pound down, U.S. travelers will get more for their money when traveling to Britain.
- Brexit and U.S. Interest Rates
If American consumers end up spending less as a result of Brexit, the Federal Reserve may refuse to raise interest rates for the remaining of the year. As of June 2016, Fed committee members have only called for one rate hike. If the U.S. economy is greatly impacted by Brexit, the Fed may propose a zero rate hike for 2016. Central banks around the world have also lowered interest rates. Remember that lower interest rates equate to lower bank earnings.
With so much uncertainty with the financial markets, you may be wondering if your business will weather the storm. There is still much speculation regarding the impact the Brexit will have on U.S. businesses. With regards to international trade and transactions, I always tell people to closely follow the value of the dollar. A stronger or weaker dollar will almost always have a direct correlation as to how the U.S. is impacted by the Brexit.