On January 18, Theresa May finally outlined her plan for the UK’s withdrawal from the European Union. Though her speech painted a rosy and prosperous picture for Britain’s future in the global economy, she ruled out any of the ambiguous partial membership ideas that have been widely discussed in recent months. While she struck a very optimistic tone, her optimism doesn’t appear to be grounded in the reality of the situation.

hard BrExit

This means that Britain is opting for what has been described as the “hard Brexit” option.

What is hard BrExit?

Hard Brexit means leaving the European single market completely, and negotiating new trade deals with Europe and other economies as well as renegotiating those which Britain is currently a part of through the EU. The UK will no longer be subject to any of the EU’s regulations or the European Court of Justice. Ms. May also indicated that the UK will aim to at least partially leave the customs union, but didn’t elaborate on how or to what extent she aims to do that.

This path is designed to maximise the UK’s local authority at the expense of much of its institutional regional influence. This is important to the conservative government because many Brexit voters are very resentful of EU regulations and influence in the nation’s economy, and Britain’s open borders. In doing this, May is abandoning any middle ground and committing to fully pull the country out the union.

What will Britain’s relationship with the EU be?

According to May’s plan, Britain will be seeking to institute a new “comprehensive, bold, and ambitious” free trade agreement with the EU. Effectively she is looking for a way to independently secure all the most important benefits of being an EU member without any of the unwelcome obligations. She reasons that free trade is in the interest of both parties, and that not agreeing to it would be unfriendly of the EU.

Brussels, for its part, is not amused. While it is certainly in the EU’s best economic interests to keep trade flowing smoothly, allowing this kind of move would send a dangerous message to other eurosceptic parties in Europe. Allowing one of Europe’s wealthiest countries to benefit from the single market without playing by its rules would not only embolden other populist movements, but it would also infuriate nations who have spent decades working to qualify for access through membership. That, in turn, could lead to far more serious issues for the EU internally.

Because of this, the EU is extremely unlikely to take a conciliatory tone with the UK. May’s dream of turning her country into a “great, global trading nation” in its own right will likely be off to a rocky start.

What this means for UK businesses

The UK government is gambling with the livelihoods of businesses that rely on the EU market, and doing so with long odds. While trade with the EU will certainly still be possible, it may become very difficult to continue to compete regionally. Fortunately, business owners won’t be thrown into this new world without warning. Britain won’t effectively withdraw from the EU for up to 2 years, giving businesses time to diversify their target markets to avoid having the rug pulled out from under their feet completely.

Global implications

If, as expected, the UK doesn’t come to any very favorable agreements with the EU, they’ll need to strengthen their global trade efforts. To do that, they’ll need to aggressively pursue new trade agreements abroad, which could lead to very favourable conditions for foreign businesses seeking to make deals in the UK.

Unfortunately, they may be forced to navigate a messy bureaucratic quagmire to take advantage of this. Because the UK was a part of the EU and the EEC before it for such a long time, half a century worth of laws will need to be reviewed to determine if they’re relevant to the UK and if they’d like to keep, change, or remove them. Understandably, this could take a long time, during which it might be difficult to determine exactly what the legal environment for an industry is on any given day, week, or month.

Besides that, there are also financial effects to worry about. While the British Pound has suffered some inflation over the last year, it actually gained value from $1.2 to $1.23 after May’s speech. Despite this it’s likely that the pound will continue to weaken as Brexit negotiations take place, especially if and when the EU rules out a future free trade deal. The economic uncertainty that comes with this kind of event will also very likely send sharemarkets in Britain and the EU into a dive in the short term when Brexit goes into effect.

As this situation continues to evolve, we’ll continue to offer our take to help keep you informed. Stay tuned!