The outcome of the June 2016 Brexit referendum defied all the polls, but the uncertainty it created came largely as expected. In its first post-Brexit year, the UK has been on a political rollercoaster. Former home secretary Theresa May won the Conservative leadership contest to succeed David Cameron as prime minister, then triggered Article 50 in March 2017 and called a snap general election soon after.

Despite this political turmoil, one thing has not changed: 12 months on, nobody knows what a full Brexit deal will look like. However, the business community has formed several key expectations around the shared assumption that the UK will inevitably leave the single market one way or another, losing customs-free access to the EU market, as well as passport rights for financial services, let alone EU funding.


Waiting for British and European authorities to strike a deal in the next 18 months, these early expectations are already driving strategic decision-making across all sectors, stalling new investment as a result.

FDI contraction 

Foreign investors announced 728 projects in the UK worth $28bn in the 10 months since the referendum to April, down by 34.4% in value terms from the 862 projects worth $42.7bn recorded in the same 10-month period a year earlier, according to greenfield investment monitor fDi Markets. The decrease would have been greater had it not been for the real estate sector.

The sudden drop that sterling suffered against the US dollar in the immediate aftermath of the Brexit vote made UK land and property suddenly about 20% cheaper in dollar terms. It prompted investors from the US, China and even continental Europe to invest as much as $9.9bn – or more than 35% of total FDI – in the sector in the next 10 months, up from $7.9bn, or 18.6% of total FDI, in the same period 12 months earlier.

Some major investors chasing growth in the UK market, which has remained resilient despite the uncertainty with economic growth estimated at 1.9% in 2017 by the Bank of England (up from 1.8% in 2016), have also announced new major investments in the period.

US e-commerce giant Amazon has set aside $346.8m for a new warehouse employing 1500 people in Tilbury, Essex, while Swedish furniture giant IKEA plans to add 1300 jobs in three new stores opening by the end of 2018.

Mixed feelings

If Brexit has boosted overseas investment into real estate and property development and did not disrupt market-oriented FDI, it stirred mixed feelings across many other sectors, whose fortunes are more closely dependent on free access to the European market.

“Following Brexit, I decided to start looking to expand our business in continental Europe in order to have a footprint in the eurozone,” says Gregory McDonald, managing director of Goodfish, a plastic injection moulding and toolmaking business whose main clients are tier-one automotive suppliers. Goodfish has three production facilities in the UK and Mr McDonald is planning to open a new one in Slovakia by 2019.

“Ultimately, my radar is on what automotive original equipment manufacturers [OEMs] are doing. For them, the main reason to be in the UK is the access to the single market, which will disappear with a hard Brexit,” he says. “In times of uncertainty, there are many other places they can invest, given that they have established supply chains across Europe. I believe capacity increases and new investment will slow down, if not even flattened out at an OEM level.”

Investment stalling?

Even before triggering Article 50, Ms May has been vocal in her support for the UK's automotive industry, which exports 75% of its annual 1.6 million vehicle production, with half bound for the EU. She reportedly offered Nissan, the country’s second largest car producer after Jaguar Land Rover, generous tax breaks to keep production at Sunderland despite a possible hard Brexit raising the spectre of World Trade Organization 10% border tariffs for vehicles.

The government’s efforts to reassure investors have worked so far, with Nissan publicly reiterating its commitment to the country, and overall announced greenfield FDI in the auto industry growing by an annual 15% since the referendum, fDi Markets figures show. However, there is a general perception within the industry that OEM producers, and consequently their suppliers, are already holding off investment plans.

“Investors in the UK automotive sectors are in a wait-and-see mode. They want to know what Brexit exactly means,” says Pierluigi Ghione, plant manager at tier-one German automotive supplier Grammar, who has 25 years’ experience in the sector. “At the moment, any decision on footprint, expansions or closures is on hold.”

Passports rejected

OEM suppliers are not the only ones seeking alternatives across the EU – the financial industry is facing the likelihood of losing passporting rights to market their banking, insurance, asset management and e-payment products in the EU.

“It’s pretty clear that passporting will fall away,” says Michael Kent, founder and CEO of online remittance service Azimo. “There is a common understanding among regulators, banks and the government that they won’t let that happen very suddenly, but we are planning to open elsewhere else in Europe so that we can continue to service a market that is more than half of our sending customers.”

Possible restrictions on migration are also looming for an industry that relies heavily on imported talent.

“We are not so worried – we are used to being responsive, to moving fast. If our office here burnt down, everyone can pick up their laptop and set up Azimo pretty much anywhere else in the world," says Mr Kent. "We won’t shut our London headquarters any time soon; in fact it may well get bigger. However, all things being equal, growth for us is going to be elsewhere. Not just in Europe, also in Asia or the Middle East.”

A question of balance

While financial technology firms may be nimble and flexible, bigger financial institutions will have to find a delicate balance between functions and operations located in London and subsidiaries in the EU. Announced FDI into the UK financial and business services sectors has already dropped by 15% to $1.2bn since the Brexit referendum, according to figures from fDi Markets.

Andy Baldwin, EY’s regional managing partner in Europe, Middle East, India and Africa, says: “In financial subsectors dependent on the single market, such as wholesale insurance, capital markets or asset management, businesses are on their way to secure licences and establish fully fledged capitalised subsidiaries elsewhere.

“What we are seeing already in the emerging structure under assessment is that EU subsidiaries will continue to report to London. However, if control functions have to move to an EU subsidiary because of a particular post-Brexit regulatory relationship, then there is a risk to see far greater level of employment moves out of the UK.”

Suggestions to move

EU regulatory bodies are also issuing guidelines to help companies 'prepare' for a UK withdrawal from the EU. The European Medicines Agency published a report on May 31 suggesting UK-based pharma companies should move roles and functions to an EU member location ahead of a Brexit deal, to preserve their rights to sell medicines in the common market.

With 18 months to go for a Brexit deal, if any, to be struck, the UK government has to set expectations at two tables, one in Brussels, the other one at home, keeping in mind the number one concern of businesses and investors across the board.

“There is uncertainty and bad outcome,” says Hani Redha, managing director at global asset manager PineBridge Investments. “A bad outcome you can manage but prolonged uncertainty is the worst enemy in the financial markets. They can deal with a deteriorating economic scenario, but uncertainty is the worst option of all."