The British exit from the European Union is being discussed widely – its initial impact on the global economy and implications in the future. Clean India Journal takes a quick feedback from the cleaning industry Talking of the consequences of Brexit in general firstly the UK is still a member of the EU and all agreements of the EU with third countries are still valid for the UK. Nevertheless, several rating agencies have rapidly downgraded the creditworthiness of the UK. And even the credit rating of the EU was downgraded as a follow-up of the first reactions. The British Pound lost about 10% against the US-Dollar from the day of the referendum until beginning of July. We can see that numerous international companies are worried about the situation and stopped hiring people in the UK and stopped planned investments in the UK. Cities on the European continent such as Berlin already started their marketing to attract British companies who are willing to invest in the EU or re-locate their businesses. Northern Ireland but especially Scotland are obviously not happy with the result of the referendum and would be happy to find ways to remain part of the EU.
After the UK government file the necessary papers to officially leave the EU, the process of dissolution of the complex contracts will take at least two years. The UK government will in parallel work on a large number of bilateral agreements with the EU and all third countries that were linked to the UK with contracts that the EU has signed. As the UK has not entered the EURO-zone and they have not been part of the Schengen-Agreement, this will reduce the complexity of this process only a little. Provided the currency exchange rate of the British Pound stays weak, it will improve the competitiveness of UK exporters. Imported goods will on the other hand be more expensive and the credit rating will have an effect on the interest rates and therefore prices for investments will inflate. This might have an overall negative effect on the industry and on the whole on the UK economy.
Foreseeing a slowdown of the UK economy will have a negative effect on the cleaning market. Cleaning markets tend to suffer as customers will try to reduce their cleaning expenditures as well as costs for maintenance and investments in new buildings. The effect can easily cumulate to a reduction of the turnover of the cleaning industry by 20 percent or more over the coming three years. More-over Britain has a high number of immigrants especially from Poland that entered the UK job market based on the principle of freedom of movement within the EU. A big number of them are working in hospitality and the cleaning industry. With a shrinking number of job opportunities in cleaning and in general most of them might be forced to leave the UK. It might even be that the residence permit status of these people will not be prolonged. What will be more of a challenge will be a brain drain of British academics and skilled people that we do expect in the medium term. Overall we will see a shrinking economy with all natural consequences also for the cleaning industry.
The reasons for the BREXIT decision were not only lying in the UK. While the EU Commission, Parliament and Council did care for product specific measures, for example, on vacuum cleaners to mention a product of our industry, unemployment in countries like France and the UK was becoming a big problem that remained unsolved. In detail, things are more complicated but this is what the average voter in the UK was at least aware of. Let us hope that the EU learned the lesson and will focus their work on the important challenges that have been unresolved for many years such as economic growth in member states, unemployment, the EURO challenge and the depth crisis.
The effect of Brexit has really not affected us to a great extent. But because of the weakening of pound against the rupee, it has brought down the realization for us in the exports front. The pound to rupee rates which was hovering around `100 has crashed to around `87 now. But this is expected to reverse back in the near future as the sentiments improve. On the flip side, in general, for importers of cleaning equipment from Britain, the import cost will be less and hence the realization will be better. But since most of the cleaning equipment which are imported into India are from Italy, Germany, China, etc., the Brexit should not have a major impact on our cleaning industry.