Legal Business Blogs

Comment: After the Brexit vote you can kiss the UK’s stability premium goodbye

The dust has yet to settle, indeed the horizon in post-referendum Britain is heavy with smoke and particles of an uncertain nature. But as the market turmoil of the vote to exit the EU subsides, the profession is left asking: what now?

With the narrow vote for Brexit, there is huge pressure to leave the EU in some form but how and even if it will happen is not clear. Article 50 notice of the UK’s intention to leave has not been triggered and likely will not before September at the earliest under new Prime Minister Theresa May (pictured). Meanwhile, there is near civil war in the Labour Party ahead of a possible general election that would make intentions to Europe central.

In short, political considerations are driving this, not legal. Within days of the result, we have moved from an expectation of Britain speeding towards the exit to looking possible that the UK will press to retain single-market access (via a Norway-style membership), or just stay in the EU altogether.

This is due to smoke signals from the largely absent Leave camp pointing towards remaining as an associated EU member.

Those who argue the voters’ will cannot be undone are ignoring the UK’s convention of parliamentary sovereignty and widespread support of MPs for EU membership. More to the point, there is no precedent in post-war British politics for a major national electoral victory in which the winning side substantially recast its own core messages within two days of victory, as the Leave camp did on immigration, the economy and public service funding. Brexit remains a questionable mandate – it is hard to see how the conventional rules of British politics apply.

It is debatable even if Leave would win the vote if held again this week, let alone in a year. The Brexit foundation is composed of liberal free traders and a larger constituency with a protectionist and socially conservative outlook. Battered by even a moderate downturn, such unstable ground will shift.

And a downturn looks likely. Markets have currently settled as much on expectations that single-market access will now be fought for. If article 50 is triggered in the autumn by a harder-line Tory leadership gearing up to sacrifice that prize, turmoil and sell-offs would likely renew.

So a best case for law firms is what has already been a choppy year will get worse. There will be nothing like enough Brexit-planning work to make up for plunging M&A levels, at least until it becomes clearer what we are planning for. In the meantime, many law firms will hold off on investment and take a call in the autumn on whether they need to reshape their City practices post-vote as they did post-Lehman.

It will be alien for many law firms to have to make such calculations. Commercial lawyers are pragmatists, more attracted to competence than left or right and the vote is a bitter result. But the UK has long had a premium on assets precisely because it had the stability and institutions to warrant it. It is becoming increasingly obvious we are entering an age of populism and weaker primary parties in which such stability can no longer be assumed. For the first time in 30 years, law firms will have to ask what politics means for their business.

For more on Brexit’s impact on City firms see:

‘The Last Word – Brexit’ 

The profession takes stock as Brexit vote sends UK crashing out of EU… and into years of uncertainty