While some local businesses with significant exposure to the United Kingdom will see sales declines because of Friday’s Brexit vote, the referendum’s impact on the economies of Kentucky and Louisville likely will remain small, two analysts said.
Voters in the UK — England, Scotland, Wales and Northern Ireland — on Thursday voted to leave the European Union (Britain + Exit = Brexit). The unexpected referendum result sent global markets into a tailspin on Friday. The Dow Jones Industrial Average fell more than 600 points.
While analysts and a representative of local businesses told Insider Louisville that the initial local impact likely will be muted, they said the Brexit does raise questions about the future of the integrity of the United Kingdom and of Europe.
For at least one British expat living in Louisville, the vote also symbolizes a step back in time, toward an era of less solidarity and more xenophobia.
The pro-Brexit camp had campaigned largely on a platform of wanting to free the UK from a burdensome bureaucracy in Brussels and protecting the kingdom from unfettered immigration from the 27 member countries of the European Union.
The “remain” supporters argued that the UK was stronger within the EU and that a Brexit would have significant negative economic repercussions.
In the days leading up to the vote, pollsters and bookies predicted that the remain side would win, which pushed stock markets higher. When the “leave” campaign won, markets plunged.
The Brexit’s biggest impact is that it “is likely to cause a recession in the United Kingdom,” said Andy Means, director of investment for Hilliard Lyons Trust Co.
While the voters determined the future of their UK, Means said their unprecedented exit from the EU also raises doubts about the whole European project.
Anti-immigrant sentiment has risen in many parts of Europe in the last few years as countries squabble over how to deal with the significant influx of refugees from war-torn regions such as Syria and of migrants who are fleeing their home countries for economic reasons.
Right-wing, anti-EU parties in many European countries, including the German Alternative für Deutschland (Alternative for Germany) and the Front National (National Front) in France, have seen a significant rise in membership and voter support. In May, in Austria, for example, the candidate for the right-wing Freiheitliche Partei Österreichs (Freedom Party of Austria) lost the presidential run-off by a very narrow margin, with 49.65 percent of the vote.
Means said the UK’s exit from the EU could embolden euro-skeptics in other countries and prompt more referenda and exits.
The UK, too, could become smaller. While voters in England and Wales overwhelmingly supported a Brexit, majorities in Northern Ireland and in Scotland voted to remain in the EU — but were outvoted by their more populous English neighbors.
In 2014, about 55 percent of Scots voted in a national referendum to remain in the UK, but the Scottish first minister already has said that the Brexit vote likely will prompt another vote concerning Scotland’s independence.
The potential breakups of the UK and of Europe are roiling financial markets, Means said.
Impact on Louisville and Kentucky
Means also said that the falling value of Britain’s currency compared to the U.S. dollar would make goods and services produced in Kentucky and Louisville more expensive for customers in the UK, which could hurt local exports.
The UK last year was Kentucky’s second-largest export market, after Canada, but ahead of Mexico. Kentucky businesses sold $2.6 billion worth of goods and services to UK customers in 2015, up 9.4 percent from the prior year.
Top exports include aircraft engines, automotive components and bourbon. While Ford Motor Co., one of the area’s largest employers, told Insider Louisville that it does not export Louisville-made vehicles to the UK, distiller Brown-Forman said it was “still evaluating the impact of yesterday’s referendum outcome.”
According to public filings, the UK is one of Brown-Forman’s most important geographic markets, accounting for 9 percent of sales.
Kent Oyler, president and CEO of Greater Louisville Inc., the local chamber of commerce, said Friday that he had not received much reaction from local businesses — though he cautioned that the news of the Brexit vote was still fresh.
While some individual businesses could feel some effects from the vote, Oyler said he expects its overall impact on the Louisville economy to remain relatively small.
Oyler, who has a British son-in-law, also said that the UK vote reflects a strong anti-status quo sentiment akin to the one that has prompted U.S. voters to support anti-establishment candidates in this year’s U.S. presidential primary elections.
Gus Faucher, deputy chief economist for PNC Financial Services Group, said he does not expect the vote to present much of a jolt to the U.S. economy.
Kentucky is not a big export market, and though the UK was Kentucky’s second-largest export market last year, the value of goods and services shipped to the UK was about a third of what was shipped to Canada.
While he said the Brexit vote initially served as a big shock to the global economy, the impact on the U.S. likely will be small, in part because American exports to the UK represent less than 1 percent of U.S. GDP.
The fundamentals of the U.S. economy remain strong, Faucher said, thanks to robust consumer spending, which should continue to expand in the near term.
Effects beyond the economy
Matthew W. Barzun, the U.S. ambassador to the UK (and a former Louisvillian) declined Insider Louisville’s request for an interview on Friday, but a message he posted on Twitter relayed his disappointment with the vote.
“Well, it’s been a big day … and as (President Barack Obama) says, our unmatched & unbreakable #SpecialRelationship will endure.”
Barzun has significant ties to Louisville. His wife, Brooke Brown Barzun, is a member of the Brown-Forman Corp. family, and the couple have lived in Louisville.
Some citizens of the UK are worried somewhat about the vote’s economic repercussions — but even more about what it says about European politics and society.
London native Pip Pullen, who has lived in the U.S. since he came to study at Bellarmine in 1978, said the Brexit vote represents a Europe stepping back toward an era of provincial, populist and atavistic attitudes that in the prior century caused enormous conflicts.
Pullen, who is a partner in the digital branding firm Mightily, said he comes from a family that believes in global thinking, equality and the removal of artificial barriers, and he was disappointed in the result of Thursday’s vote.
“This is taking a huge step backward that can’t be unwalked,” he said.
On Facebook, Pullen called the vote a “disgusting result,” and summarized the xenophobic attitudes of some pro-Brexiters with a quote from George Orwell’s novel “Animal Farm:”
“Remember, comrades, your resolution must never falter. No argument must lead you astray. Never listen when they tell you that Man and the animals have a common interest, that the prosperity of the one is the prosperity of the others. It is all lies. Man serves the interests of no creature except himself. And among us animals let there be perfect unity, perfect comradeship in the struggle. All men are enemies. All animals are comrades.”