Brexit: The only certainty is uncertainty

A few weeks back, we surveyed more than 200 senior business leaders for their views on the UK's referendum on EU membership. They came back saying they were largely in favour of remaining in the EU, but few had considered the practical implications of a Brexit and are unprepared for a potential vote to leave.

Through our conversations with clients, a number of key themes emerged:

Uncertainty
A word we hear often. Businesses are concerned about the level of uncertainty that leaving the EU would bring and how long this would take to resolve. The volume of unknowns is such that many do not see how they could possibly prepare. One of the largest identifiable risks to the sector is the potential loss of passporting rights for firms based in the UK. Many businesses may wish to look at their footprint to re-assess if all their cross-border operations are required given that greater complexity usually comes with greater cost.

Exchange rates
Naturally, this was a key theme for those with international exposure. They, alongside many economists, are predicting a short-term depreciation in sterling if the UK votes to leave. While some see this as a welcome opportunity to push exports, there are also concerns over its impact on the UK economy given the current account deficit.

Regulation
A recurring theme on the campaign trail, but of less relevance to the sector? The regulatory picture is complex with many financial and banking rules set by global regulators. It could also be argued that UK regulatory standards are higher than those set by the EU, suggesting the immediate impact of leaving the EU may be limited.

Economics versus politics
Businesses are acutely aware that there is a clear disconnect between issues that matter to them and those that resonate with the public. Should the UK vote to leave, the political arguments against continued membership (such as a desire to reduce immigration) will need to be reflected in any subsequent deal. While access to the European Economic Area would minimise the impact on businesses, the need to accept free movement of people will likely make such an agreement politically unviable.

With some big issues at stake for private equity and a large number of risks and unknowns, it is important that before deploying capital, investors analyse the potential impacts carefully.

Most, if not all, private equity houses we have spoken to are in favour of remaining in the EU. This is not based on a rational analysis of economic pros and cons, because no one has really been able to do that on either side of the debate; rather, it is based on a desire for certainty.

Business and financial markets abhor uncertainty and like to be able to plan – hence most business leaders are in favour of remaining. Whether the general public are of the same mind remains to be seen.