Impacts of Brexit on Global Sourcing of Technology and Business Services

November, 2016


Upholding the electoral manifesto of Britain’s Conservative Party, the then Prime Minister David Cameron, scheduled an advisory referendum on June 23, 2016 where Britain voted to leave the European Union (“EU”). Immediate reactions that followed the voting were a mixed series of tears and cheers from across the global financial and business markets.
Britain, of course, experienced the maximum heat from the global markets. Immediately following the vote, the UK Stock Exchange plunged and the pound plummeted to a 31-year low. £120 billion were wiped off the value of Britain’s leading shares and over $2 trillion from markets around the world. The pound was down 10% against the dollar and more than 7% against the Euro. In total, the combined FTSE 350 index surrendered £140 billion in the Brexit aftermath, (-14.2%) in 2 days. The yield on 10- year Government bonds dipped below 1% for the first time ever, as investors sought safety and bet that the Bank of England (BoE) would cut interest rates to zero.
Leading credit rating agencies have since downgraded UK’s credit rating as well. Standard & Poor’s (S&P) and Fitch’s rating for UK is at AA with negative outlook. Moody’s credit rating is at Aa1 with negative outlook. A summarized view from the credit rating agencies indicates that UK’s economy will face less favorable terms for exports to the EU, lower immigration and a reduction in foreign direct investments that will impact medium-term growth, along with a recalibration in the value of the pound and softness in the business environment.