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Post-Brexit world will only be disastrous if we let it

30 Jun 2016

Opportunities bring optimism, says LBS expert

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Low taxes, low regulation and skilled labour will ensure the UK retains its position as an attractive business and financial centre in a post-Brexit world, according to a London Business School expert.

Alex Edmans, Professor of Finance, London Business School, argues that while uncertainty reigns, there are rational reasons to be optimistic.

“Firms invest in the UK for many reasons. London is uniquely attractive due to the English language, low taxes, low regulation, skilled labour and expertise in accounting and law,” explains Professor Edmans.

The immediate downturn in the stock market was triggered largely by uncertainty about what lies next, believes Professor Edmans, rather than the conviction that a post-Brexit world will lead to disaster.

“Negativity is self-fulfilling, but so is positivity,” says Professor Edmans. “Many patients beat illnesses because of a positive mind-set. Leicester City or Iceland punch way above their weight due to self-belief. It’s the same with the economy.”

What John Maynard Keynes referred to as “animal spirits”, others label as “business confidence” according to Professor Edmans.

“If companies stop investing, if skilled workers emigrate, if consumers stop spending, then we will indeed have a nightmare scenario – but brought on by our own doing, not by Brexit.”

Under World Trade Organization rules, the UK has “most favoured nation” status with the EU and is, therefore, entitled to the best deal that the EU gives to any other country. With two years to negotiate a trade deal, the UK will continue to benefit from the Single Market until a new deal is agreed, says Professor Edmans.

“There will not be a sudden impact on trade. Additionally, the UK can start negotiating trade deals with many countries which the EU never had trade deals with.”

On 24 June, the FTSE 100 plummeted 8.7% immediately after the Brexit result was announced. However, in the two days following the S&P downgrade, the FTSE 100 rose 6.3% and the FTSE 250 by 6.7%.

“The market has rebounded after initial fear – yesterday, the FTSE 100 enjoyed its best day for five years,” observes Professor Edmans.

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