Uncertainty Surrounds UK Vote to Leave the EU
In a referendum held June 23, Britain has voted to leave the European Union. The results surprised many analysts and the business world, and considerable uncertainty remains as the details of Britain’s exit are worked out. Observers say it could be two years or more before these issues are fully resolved.
The immediate impact is likely to be a slowdown in the British economy, according to many analysts. PwC revised its GDP growth projection for the UK in 2016 to 1.6 percent, down from 1.9 percent, with an even steeper drop in 2017. Growth would then gradually pick up later in 2017 and beyond.
The biggest source of uncertainty, PwC says, is the UK’s future trading relationship with the EU, mainly because of the lack of precedent. For example, it is unclear whether the UK will be able to continue to access to the Single Market as it currently does now, or have to negotiate a free trade agreement, or even have to trade with EU member states under WTO terms.
For the travel industry, while is it impossible to quantify the exact extent of the Brexit, most of the impact is likely to be on travel confidence, especially business travel. In aviation, preliminary estimates from IATA suggest that the number of UK air passengers could be 3 to 5 percent lower by 2020. Another major unknown is aviation regulation. The UK faces a trade-off between accessing the European Single Aviation Market and having the policy freedom to set its own regulations. US business travel spending is expected to slow this year, growing only 0.9 percent to a total of $292.5 billion, according to the latest GBTA BTI Outlook – United States 2016 Q2 report from the GBTA Foundation. The decline represents a slight downgrade from the previous quarter’s forecast.
Factors leading to the weaker outlook over the next six months include increasing risks in the domestic and global economies, uncertainty leading up to the US presidential election and the surprising vote in the UK to leave the EU. However, the forecast going into 2017 is for business travel to grow 4.2 percent rising to $304.9 billion.
Globally the GBTA BTI Outlook – Annual Global Report & Forecast, sponsored by Visa, Inc., found that, despite continued uncertainty, business travel spend topped $1.2 trillion in 2015, an increase of 5 percent over 2014. By the end of the current year, global business travel spend is predicted to climb to $1.3 trillion and post a rise 5.8 percent on average over the next five years, reaching $1.6 trillion in 2020.