Brexit 'will cause 8% drop in exports to the UK by 2018'

The outcome of the EU referendum did not deter Export Development Canada (EDC) from setting up a new office in London this week

Zlata Rodionova

Tuesday 20 September 2016 08:59 BST

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A Canadian trade official said he expects trade with the UK to take a hit due to the uncertainty following UK’s vote to leave the EU.

Bruce Dunlope, vice-president for International Business Development at Export Development Canada (EDC), said the agency has revised down forecasts for bilateral trade with the UK, which is expected to be 8 per cent lower by 2018, as a result of the EU referendum.

Businesses will "put plans on hold until they find out what the terms [of negotiations] look like," he said in an interview with Business Insider.

Britain is one of Canada’s largest trading partner, with more than £11.5 billion of exports last year. More than 60 per cent of that trade comes from precious metals such as gold and silver.

Despite the forecast, the outcome of the EU referendum did not deter EDC from setting up a new office in London this week.

The agency said it is confident the UK will remain a global gateway for international business despite the short term difficulties.

Plans for an EDC UK office were unveiled in early 2015 with the goal to take advantage of the UK’s links to Europe, the Middle East and Africa.

In his interview, Dunlope said that the agency took a “long-term” view on the strength of the UK economy and that it was able to see past the destabilising effect of the negotiations surrounding UK’s exit from the EU.

6 ways Britain leaving the EU will affect you

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1/66 ways Britain leaving the EU will affect you

6 ways Britain leaving the EU will affect you

More expensive foreign holidays

The first practical effect of a vote to Leave is that the pound will be worth less abroad, meaning foreign holidays will cost us more

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6 ways Britain leaving the EU will affect you

No immediate change in immigration status

The Prime Minister will have to address other immediate concerns. He is likely to reassure nationals of other EU countries living in the UK that their status is unchanged. That is what the Leave campaign has said, so, even after the Brexit negotiations are complete, those who are already in the UK would be allowed to stay

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6 ways Britain leaving the EU will affect you

Higher inflation

A lower pound means that imports would become more expensive. This is likely to mean the return of inflation – a phenomenon with which many of us are unfamiliar because prices have been stable for so long, rising at no more than about 2 per cent a year. The effect may probably not be particularly noticeable in the first few months. At first price rises would be confined to imported goods – food and clothes being the most obvious – but inflation has a tendency to spread and to gain its own momentum

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6 ways Britain leaving the EU will affect you

Interest rates might rise

The trouble with inflation is that the Bank of England has a legal obligation to keep it as close to 2 per cent a year as possible. If a fall in the pound threatens to push prices up faster than this, the Bank will raise interest rates. This acts against inflation in three ways. First, it makes the pound more attractive, because deposits in pounds will earn higher interest. Second, it reduces demand by putting up the cost of borrowing, and especially by taking larger mortgage payments out of the economy. Third, it makes it more expensive for businesses to borrow to expand output

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6 ways Britain leaving the EU will affect you

Did somebody say recession?

Mr Carney, the Treasury and a range of international economists have warned about this. Many Leave voters appear not to have believed them, or to think that they are exaggerating small, long-term effects. But there is no doubt that the Leave vote is a negative shock to the economy. This is because it changes expectations about the economy’s future performance. Even though Britain is not actually be leaving the EU for at least two years, companies and investors will start to move money out of Britain, or to scale back plans for expansion, because they are less confident about what would happen after 2018

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6 ways Britain leaving the EU will affect you

And we wouldn’t even get our money back

All this will be happening while the Prime Minister, whoever he or she is, is negotiating the terms of our future access to the EU single market. In the meantime, our trade with the EU would be unaffected, except that companies elsewhere in the EU may be less interested in buying from us or selling to us, expecting tariff barriers to go up in two years’ time. Whoever the Chancellor is, he or she may feel the need to bring in a new Budget

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“We consider ourselves a stable, long-term source of capital, so we will often take a much longer view than financial institutions, which might be a little more quarter-to-quarter. We've seen economic crises come and go. This might cause a mini one, with the uncertainty created, but we have lots of confidence in the UK long-term," he said.

The British government has also expressed an eagerness to expand trade ties once the country formally leaves the EU.

“While we have been planning the London representation for a number of years, the circumstances are such that Canadian companies now have an on-the-ground resource to help them manage the Brexit uncertainties,” Mairead Lavery, senior vice-president, Business Development, EDC, said.

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