With the vote of almost 52% in favour of UK leaving the EU has raised hype of high uncertainty among different sectors of the economy. Brexit has become the short hand form for the separation of UK from EU combining the Britain and Exit. The importance of Brexit has prompted to carry out following study on negative aspects of Brexit that are expected to intervene with regular operations of businesses. The study has focused on Atkins that is multination firm aimed at designing, planning, constructing and providing consultancy services to different countries. The study has shed light on the core business aspects of Atkins including its financial position. In addition to it, the Crossrail project has been considered as the main case for current essay and its brief introduction is being provided. The discussion has moved further to effects of Brexit in context of interest rate, exchange rate, inflation and trade level within EU. In addition to it, the reducing value of Sterling and response of UK in terms of interest rate change and Quantity Easing has also been discusses. Finally, the focus has been maintained on investigating the association of Brexit on Atkins and Crossrail project of Atkins.
Atkins is the multinational British organization that is specialized in engineering, design and planning, management of project and consulting services. Atkins is one the largest engineering consultancy firm and it has successfully completed infrastructure projects in 29 countries across the world (Atkins Plc, 2016). The main function of Atkins is to assist the client in planning, design and development of different infrastructure project. The revenue of company is coming from its design, planning and construction projects from different regions such as UK and Europe, North America, Middle East and Asia Pacific (Atkins Plc, 2016). The company is enjoying sound financial position and it has witnessed huge level of profitability from its operations during the past financial year. The company has calculated its revenue from UK and EU in the same slot and the company has earned highest profit from UK and EU region. The level of operating profit earned from UK and EU is £ 60.7 m (Atkins Plc, 2016). Overall the profit before tax for the year 2016 has been witnessed to be equal to £131.1 m. The funding of the company is being generated through Bank loans, bank overdrafts and financial leases.
In UK, Atkins is working on number of construction projects of which Crossrail is an important project of east-west railway. This project has got approval in 2007 and work on the central line has started in 2009. This project is considered as one of the largest railway infrastructure project in UK. The Atkins is responsible for upgrading 30 stations that are already the part of railway and it is also constructing new stations (Atkins Plc, 2016). Atkins is responsible for exterior and interior finishing of the project.
United Kingdom has chosen to get separation from European Union and this process is commonly known as Brexit (Goodwin and Heath, 2016). Brexit has created huge political uncertainty and instability and it has been forecasted that UK is heading towards recession (Booth et al., 2016). The Brexit referendum was held in June 2016 and as a result of this economy has contracted in July by 0.2%. It can be seen in the figure 1 that GDP of the UK has declined significantly from the forecasted value after the referendum (McKee and Galsworthy, 2016). Prior to Brexit, UK has recorded high employment rate of 74% and annual growth GDP was 2.2% in the quarter 1. However, after the Brexit, this growth rate was highly impacted.
Figure 1. GDP growth and forecast before and after Brexit
Source; Bouoiyour and Selmi (2016)
The income level of whole EU has fallen significantly and UK is being influenced most. The overall in GDP of UK has been witnessed to be equal to £12 billion, which is huge decline. It is expected that household income will fall on average at the rate of 1.35 or £815 per household (Bouoiyour and Selmi, 2016).
It is considerable that currently UK is carrying out most of its trade with EU and it is highly benefiting country based on low cost trading opportunities (Owen and Walter, 2016). Post Brexit impact on trade can be in the form of lower trading opportunities based on high tariff and non-tariff barriers between UK and EU (Purdue, Huang and Economics, 2015). The non-tariff barriers will arise from different border controls and regulations. Separation will also limit the ability of UK to gain benefit from the future trading policies within EU and thus single market integration will go beyond the access of UK along with all of its benefits (Stevens and Kennan, 2016). For instance the total of 45% of UK’s exports are with EU member nations and EU nations accounts for 53% of UK’s imports. However, there are some optimistic forecasted aspects of Brexit as well that are being highlighted by economic researchers (McKee and Galsworthy, 2016). They have provided that Brexit can offer the opportunity to UK to gain all of the benefits from European single market, just like Norway by joining EFA (European Economic Activity) (Stokes, 2016). The opportunity to remain with European single market can allow the UK to avoid disastrous impact of Brexit on trade, up to some extent (Toly, 2016). As the final verdict, after the Brexit the trade of UK with EU will be monitored through the regulations of WTO. Thus, UK will be exposed to MFN tariffs on its trade with EU. The trade will be reduce and with 1% decline in the value of trade, there will be 0.5% to 0.75% in per capita income of UK. Moreover, in case of joining EEA, UK will experience reduction in per capita income by 6.3% to 9.5%.
The post Brexit influence has also been witnessed in the decline of Sterling. The figure 2 is clearly indicating the fall in Pound in comparison to Euro (Cumming and Zahra, 2016). The figure is showing that huge decline has been witnessed during the second half of 2016. Similarly, the figure 3 is also indicating that value of Sterling is reducing as a consequence of Brexit (Stevens and Kennan, 2016). This decreasing value of Pound is consequently associated with increasing cost and prices of different goods. All of sectors of economy are witnessing issue from increasing level of inflation and reducing income level of the country (Ebell and Warren, 2016). It has been highlighted in the report that almost all of the goods are 22% more expensive in the year 2016 (Gros, 2016). The rate of inflation has gone up from 0.5% to 1.2% that is the highest recorded value after October 2014.
Figure 2. Decline in value of Pound in comparison to Euro
Source; Hatzigeorgiou and Lodefalk (2016)
Figure 2. Decline in value of Sterling post Brexit
Source; Schiereck, Kiesel and Kolaric, (2016)
In terms of monetary policies, the Bank of England is expected to take actions by cutting the interest rate. The reduction in interest rate can limit the ability of UK to deal with post Brexit crisis (Dhingra et al., 2016). The interest rate has been cut to 0.25% for the first time in last seven time with an aim of fostering high street lenders to promote cheap borrowings. The bank has signalled that they will further decrease the interest rate (Goodwin and Heath, 2016). In similar way, the Monetary Policy Committee has undertaken Quantity Easing (QE) Program, which is also termed as an important imitative of UK to cope with negative impacts of Brexit (Hatzigeorgiou and Lodefalk, 2016). Given this view, UK has bought corporate bonds of worth 10 billion and it has launched Term funding scheme. It has been highlighted by the Bank of England that monetary stimulus can help them to avoid long run adverse impact of economic slowdown that has been caused by Brexit (Gros, 2016).
The decision to get separated from EU and increasing economic uncertainty has enhanced pressure on policy makers to devise policies for funding of infrastructure projects (Lea, 2016). Prior to Brexit, EU has supported different infrastructure projects in member nations through European commission of infrastructure, whose main goal is to improve transport, sanitation, and communication system in different member nations (Lawless and Morgenroth, 2016). The infrastructure project are being supported through funds of EU. Therefore, the decision to get separation from EU is laying pressure on UK to fund its infrastructure projects at its own. The Infrastructure UK (IUK) is working jointly with the Government to facilitate long term investment projects in UK.
Being working on the infrastructure project of UK, Atkins is highly susceptible to economic changes that has come along with the Brexit. Increasing inflation as results of Brexit is one of an important factor that might cause hurdles for smooth operation of Crossrail project of Atkins (Liddle, 2016). The project is working from 2009 and sudden changes as the result of Brexit are likely to create problem in flow of funding (Purdue, Huang and Economics, 2015). As stated earlier, reduction in GDP of UK due to decreasing amount of trade across EU (based on high tariff and no-tariff requirements) is the main issue that might affect the flow of funding. Thus, the EU will no longer be there to support the Crossrail project led by Atkins (McEwen, 2016). In addition to it, the reduction in value of Sterling as result of Brexit is also an important factor that can affect the profitability level of Atkins with in UK.
Relatedly, the Brexit has brought changes in cost of material due to inflation (Owen and Walter, 2016). The estimation of current budget for Crossrail project of Atkins has bene carried out by keeping into account the pre Brexit values of different construction materials. It has been identified from research that Brexit is expected to bring inflation (Oliver and Williams, 2016) and increasing rate of inflation can cause it difficult for Atkins to complete project in the given budget. Therefore, increasing project cost can not only exert pressure on funding agencies but it can also contribute in reduction of revenue of the company, which mainly comes from design and construction activities of Atkins.
The aspect of Quantity Easing being introduced by UK Monetary Policy Committee can contribute in generation of higher funds through private investment (McKee and Galsworthy, 2016). Yet, it is notable that high economic uncertainty that is being caused by Brexit is likely to lower the confidence of investors from UK infrastructure and thus, Atkins cannot expect higher level of investment. Post Brexit challenges are huge for Atkins and especially for Crossrail that is one of the major infrastructure project London and requires huge amount of budget (Nunez-Ferrer and Rinaldi, 2016). The same has also been provided by Atkins that influence of Brexit is huge for them and they need to work cautiously with an aim of coping with these challenges.
Brexit is highly important event for both UK and all of the EU countries based on the fact that separation of UK from EU can exert huge economic pressure. Brexit can be considered as highly negative event for the growth of Atkins and for overall development and prosperity of UK. Main aspects associated with Brexit that have the potential to restrict smooth operations of Atkins include the lower level of trade between UK and EU that is causing reduction in the GDP and income level of UK. The reduction in level of income can intervene with flow of funding for the Crossrail project but it can also act as the hurdle for attaining the desired profitability level of Atkins. In addition to it, the Brexit is reducing the value of Pound in contrast to euro and it is causing higher rate of inflation within UK. Decline in the value of Sterling can lead to higher level of inflation and inflating prices of raw material for construction can make it difficult for Atkins to cope with the budget requirements. Therefore, the profitability level of Atkins can get affected and this issue is indicating that influence of Brexit is expected to be highly negative on long term profitability of Atkins as well as on completion of Crossrail project.
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