The results are out and to the citizens of UK, it is happy news but to some, it might be a bad one because UK has decided to leave the EU. The polling results were announced on June 24 in Manchester. The campaign to leave EU won 52% of the votes and the rest of the votes of approximately 48% were for not leaving. Around 45 million registered voters cast their votes in the country.
The reason behind leaving EU was to allow Britain to take full control of its economic and borders jurisdiction under its hands without realising the shattering consequences and the stability of the continental unity forged after World War 2.
This decision has launched what could be years of negotiations over trade, business and political links with the EU, which will lessen to a 27-nation bloc.
The decision has already sent stock markets crashing, and the Pound Sterling has eroded more than 10% of its value.
The Britons waking up to a new start has brought up some chills for the Gulf investors.
According to Faisal Durrani, the Research Head at Cluttons, the leading international real estate consultancy, the late fall of the Sterling pound has erased any gains for the Gulf investors whose currencies are a fixed peg to the US dollar in the years to come. Mr Faisal also remarks that any US dollar or UAE dirham investors will find the price of an average prime residential asset worth $96000 (AED 350,000) around 32% less than it was before the voting took place.
Asia Pacific and Middle East’s leading travel site, Wego.com explains that the Brexit effect will likely have an impact on the Middle Eastern travellers as there would undoubtedly be any repercussions.
The CEO of Wego.com Ross Veitch noted that the UK pound has dropped 9.8% and with the value of the pound against the dollar at 1.3415 in early trading since the referendum result, meaning that planning a holiday to the UK is now going to be cheaper for tourists than it has been for about 20 years.
GCC travellers who come to London for shopping might want to consider selecting other destinations as their new shopping destination and holiday opportunities. According to travel experts, Italy is still regarded as the most popular destination within Europe.
Some changes can be brought to light at entry checkpoints at UK airports, as EU travellers were earlier allowed to enter the country visa-free. Now this could mean busier checking lines at customs as they queue up with other international visitors after the leave vote.
According to Veitch, the UK’s airline network may also have to review regulations, which as a part of the EU secured single aviation area treaties across Europe, which may increase airfare costs for the UK’s national carriers. Accommodation costs, however, could drop as Britain fights to retain its large inbound visitor numbers from Europe, who will no longer be able to travel freely into the country.
London may now become a challenge for the major EU hub airports such as Paris, Frankfurt and Amsterdam that provide inbound travellers easier onward movement around EU member countries. Although it will take some time, it’s unlikely the UK government will try to negotiate similar travel agreements to replicate those in place as a member of the EU, concludes Veitch.
Brexit and the Middle East
According to some experts, the Brexit vote has caught the Middle East off guard, and this will be felt in the years to come.
This election has left policymakers and business leaders in the Middle East thinking about its aftermath.
It has also been reported that the UK exiting EU will have a microscopic effect on economic policy and markets in the Middle East, as regional contracts and transactions are mostly done in dollars.
The most immediate and the obvious impact of Brexit on the Middle East is on oil prices, which fell about 6% on the Brexit news to about $48 per barrel.
The oil markets will continue to be volatile but which is estimated to be a short-term effect to Brexit. However, the strained currency market might affect some businesses in the region, particularly UK-based companies, which felt the most impact of Sterling losing value against the dollar as UK-based firms rely on dollar for their business.
It has also been predicted that UK exporters will benefit from a weaker pound as it will make British products and services more competitive. UK companies will also gain from the increased value of dollar earnings.
However, the Middle East market now in its second year of recession can impact UK businesses drastically in the region. The firms would be facing high costs due to the stronger dollar, and their P&L accounts will have a negative effect on the increased value of any outstanding dollar-based receivables, in turn putting pressure on local cash flow for UK enterprises in the region, which could result in late outgoing payments and cuts to non-business critical spending.
The regional tourism sector could also be hit by a fall in visitors from the UK, by the relative increase in cost of visiting the region. This will be most felt in Dubai, Jordan and Egypt, as these are the most popular holiday destinations for UK tourists.
What happens next?
The UK financial sector will disrupt capital markets due to falling oil prices and could activate a slowdown in EU growth that would weaken global growth, making way to a new world of oversupply oil. This will further deduct oil prices in 2017 and 2018. Any more weakening of the Euro and in Pound Sterling would strengthen the dollar, adding downward pressure to oil prices.
Istathmir reports that the recent Brexit consequences could be quite painful for some UK- based companies and citizens living in the Middle East region. But in the long run, UK firms in the area could witness a rebirth of British businesses in the Middle East.
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