Last year's big financial concern in Europe was the "Grexit," the potential exit of Greece from the eurozone monetary union. This year, the buzz is all over the "Brexit," the withdrawal of the United Kingdom from the 28-member European Union itself. A vote to leave could take place as early as June, and global investors and travelers are already preparing for a seismic shift in Europe's financial world.
There are several ways that a Brexit could affect the hospitality industry in the U.K. For starters, lenders may wait to offer funds until Britain's role in the Union is more secure. Secure Trust Bank, a small British lender, has delayed a plan to start offering mortgages and curbed lending to London real estate developers over Brexit uncertainties, according to Bloomberg.
“There’s no point in us for the sake of three months busting our guts launching a new proposition when we can have the luxury of just taking a more prudent and cautious stance,” CEO Paul Lynam told the site, noting that the uncertainty of the situation is the real issue. “It could be a non-event, it could be catastrophic. You’ve got no idea of what’s happening.”
Corporate investors crave stability, the Financial Times noted, and the "potential for chaos" involved in the exit would fundamentally change the U.K.’s investment proposition in the long term. Some senior financiers have predicted a vote to leave the Union would damage the British economy and threaten London’s status as a global business hub, Bloomberg notes.
Foreign Investment and the UK
The U.K. has been seeking investment from China and other markets in recent years, the paper noted. Last year, 153 companies based in emerging markets made an estimated $7.9 billion in investments, according to fDi Markets, an FT data service. Among advanced economies, the U.K. is the number two destination for investment coming from emerging markets, after the U.S. The U.K. is ranked third globally for overall number of projects.
Emerging markets are already issuing statements on the situation. Late last month, the Federation of Indian Chambers of Commerce and Industry warned that an exit could harm investment by Indian businesses in the UK. “Britain is considered an entry point and a gateway for the European Union by many Indian companies, a view echoed by the prime minister, Narendra Modi, in his visit to U.K. in November last year,” A. Didar Singh, the secretary general of FICCI, said in a statement.
The Tourism Effect
Another key issue is the potential risk to inbound travel in Great Britain and Northern Ireland, which could drive down the value of hotel real estate. Diljit Singh Rana, Baron Rana, owns five hotels in Belfast—Holiday Inn Express, Ramada Plaza, two Ibis hotels, and a Holiday Inn—and has said that the Brexit would be "the worst thing" for Northern Ireland's economy.
"Europeans come to Northern Ireland for their holiday," he told the Belfast Telegraph. "Out of the EU, there would be travel restrictions and all sorts of issues that would not be helpful in our industry…If there were difficulties in traveling, higher costs and customs duties for example, that would be detrimental to us." Northern Ireland saw 1.5 million overseas visitors in the first three quarters of last year.
Other issues like higher airfares, a weaker pound, and safety and security issues could also affect inbound travelers and make visits to the U.K. less appealing to EU citizens.
Significantly, Rana's company Andras House is planning to build at least three hotels in Northern Ireland over the next three years. "If the U.K. was to leave, you have to sit back and reconsider whether it is viable," he warned.