Brexit, a colloquial term created by the UK media, is one of the most used words these days. Compiled of words Britain and exit, Brexit refers to the EU referendum on June 23rd, when Britain votes on whether to leave the European Union or not. If the UK leaves EU, it will raise a lot of questions about UK growth, currency movements, trade, interest rates, capital flows and foreign investments..
Ultimately, Brexit or no Brexit is an important decision that will influence all global markets, including Gulf.
The pro-Brexit rhetoric claims that an exit from the EU will allow the UK to regain autonomy and finally focus on its own, local issues. Yet, one of the biggest reason to leave the EU, according to pro-Brexit voters, are problems associated with immigration. Brexit opponents, on the other hand, argue that being a member of the EU brings more benefits than problems.
According to the latest polls, Leave will win. But, the betting is still marginally in favour of Remain. Also, the latest tragic events that involve the killing of the British MP Jo Cox suggest that ‘Remain’ campaign may be pulling back into the lead.
Impact on sterling
Speculations aside, it is impossible not to wonder what will happen after June 23rd if Britain votes to leave. Outside of the UK, the most significant and quickest influence of Brexit will be felt on financial markets and especially on sterling. A sell-off in sterling would have a negative effect on Britain’s trading relationship with the EU, and thus on foreign investments as well. It is very likely that the Bank of England would react to that type of instability with easing monetary policy. David Cameron would be forced from office and there might even be another election. Even if you are not a big fan of Cameron, it is a fact that general uncertainty in country does not seem favourable to international investors.
When it comes to the possible impact of Brexit on global markets, it all largely depends upon the type of agreement between the EU and the UK. Regardless of the trade agreement, it will definitely leave a long-term impact on the UK and EU economies.
Gulf investors and Brexit
Investors from Middle East have continued to buy real estate in the UK, despite the speculations and fears about the consequences of Brexit. The majority of the Middle East property investors, however, would prefer if the UK stayed in the EU. Also, half of the investors have expressed that if the UK votes to leave, that decision will have negative impact on their future investment plans.
At the moment, most Middle Eastern currencies are pegged to the US dollar because the US is the biggest oil importer. Also, the weakening pound and euro have created beneficial investment opportunities for investors that could easily be stopped if Britain votes to leave European Union.
Obviously, the majority of the businessmen from Gulf would prefer the UK to remain in the EU and possibly renegotiate its position. In this situation, their investment plans would remain intact or would develop further, especially when it comes to the real estate market.
According to The National, Dubai shopping malls could also be hit if Britain votes to leave the EU on June 23rd.
“If Britain does vote to leave the EU, most people believe sterling would fall sharply, and clearly that would affect consumer decisions. Dubai is one place that could be hit as a result, although Dubai is a hub for tourists from a lot of places. So although it would be a headwind, it would not completely knock it off the rails by any means.” said Jason Tuvey, a London-based economist for The National.
The UK was the third biggest source country in the first three months, accounting for 334,000 visitors in the UAE.
Dubai’s retail and hospitality sectors have already been influenced by the strong US dollar, to which the UAE dirham is pegged. That being said, the purchasing power of visitors from Europe has been reduced, which had a negative impact on the malls and hotels preferred by the guests from Europe.
The Middle East Council of Shopping Centres declined to comment on the likely impact of a Brexit vote on the retail sector, The National reports.