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What happens if Britain leaves the EU, and why Charlotte should care

A pedestrian wears a suit, featuring the pattern of a British Union flag, commonly known as a Union Jack, in London, U.K., on June 10, 2016. U.K. Prime Minister David Cameron said he'll hold a long-pledged referendum on the U.K.'s membership of the European Union on June 23.
A pedestrian wears a suit, featuring the pattern of a British Union flag, commonly known as a Union Jack, in London, U.K., on June 10, 2016. U.K. Prime Minister David Cameron said he'll hold a long-pledged referendum on the U.K.'s membership of the European Union on June 23. Bloomberg

On June 23, British citizens will vote on whether to exit the European Union. While it remains to be seen what the United Kingdom will decide, a “Brexit” could have trickle-down effects felt as far away as Charlotte.

The vote could sway how corporations spend money and how they trade, how the Federal Reserve controls the cost of borrowing money and how Americans buy homes, experts say.

The idea behind a Brexit is the U.K.’s dissatisfaction with European policies on terrorism, refugees, trade, employment and the Greek financial crisis – all at a time when the British economy is growing twice as fast as the rest of the eurozone’s. Those favoring a Brexit believe the only way to avoid the troubles of the EU is to leave the 28-nation bloc entirely.

Mark Vitner, a Charlotte-based economist at Wells Fargo, said the looming vote increases uncertainty in global financial markets, and that weighs on businesses’ decision-making.

“When uncertainty increases, businesses pull back on investment decisions and hiring decisions, and stock markets tend to get a little jittery. And that’s not the environment the Federal Reserve would like to be raising interest rates in,” Vitner said.

Vitner and others have said even the possibility of a Brexit at a time when the global economy remains on shaky footing could delay when the Fed decides again to raise short-term interest rates, the cost for banks to borrow money. That could already be pushed back after a disappointing jobs report earlier this month: The U.S. Labor Department reported that employers added 38,000 jobs in May, the fewest since 2010.

“A U.K. vote to exit the European Union could have significant economic repercussions,” Fed Chair Janet Yellen warned in a speech in Philadelphia last week.

Charlotte-area industries affected

A Brexit “yes” vote could impact the roughly 600 companies from the European Union that have operations in Charlotte. Of those, 118 are from the U.K., according to the Charlotte Chamber.

Chamber officials say they don’t see any immediate ramifications for member organizations from a “Brexit,” unless the U.K. falls into a major recession because of it.

At the U.K.-based Compass Group, which employs about 5,000 in the Charlotte area, executives are monitoring the Brexit situation, but don’t expect a “yes” vote to have a major impact on operations here, spokeswoman Veronica Ospina said.

“It’s on our radar, sure,” Ospina said. “(But) in initial conversations, it’s business as usual for us.”

The British American Business Council of North Carolina, a Charlotte-based group that promotes bilateral trade and investment, declined to comment until after the June 23 vote.

One industry that’s definitely going to be affected? Trade.

According to the U.S. Census Bureau, the U.K. is North Carolina’s seventh-largest export partner, accounting for 3.4 percent of all exports, and the sixth-largest import partner, accounting for 5.4 percent of all imports.

“Anyone that’s involved in international trade is paying close attention to it. It’s something that’s really hard to pay too much attention to until it gets down to the last couple of weeks, which is where we are now,” Vitner said.

Silver lining

The Brexit possibility could provide a bit of a boost to prospective homebuyers in the U.S.

Given the uncertainty the vote is creating in global markets, investors are turning more toward government bonds because they are safer than equities, Vitner said. And since mortgage rates move up or down with the yield on Treasury bonds, mortgage rates could remain lower for longer.

“If there is a silver lining in all this, it’s that you can get a really good deal on a mortgage right now. Or maybe I should say, you can get an even better deal on a mortgage because you already were getting a good deal before this,” Vitner said.

And if you’re an American traveling to Europe, Vitner said, you probably won’t have to worry about a possible Brexit creating any major swings in foreign exchange rates.

Britain already has its own currency – the pound, which equals $1.42 now – separate from the euro, which equals $1.13.

“There may be some short-term fluctuation, but I wouldn’t expect to see dramatic moves,” Vitner said. “What seems to be more important for foreign exchange rates is weakness in eurozone.”

Bloomberg News contributed.

Katherine Peralta: 704-358-5079, @katieperalta

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