LONDON, United Kingdom — When the topic first began to trickle into parliamentary debate in early 2015, the notion of Britain exiting the European Union seemed absurd. Indeed, if the idea of putting the matter to a direct public vote appeared unlikely, an actual “Brexit” seemed completely implausible. But 18 months later, with a national referendum just weeks away and public sentiment stirred up by an unprecedented migration crisis on top of the on-going European debt crisis, which has seen countries like Greece bailed out by the rest of the Eurozone, opinion polls on Brexit are much too close for comfort for British prime minister David Cameron, who has staked his political future on a “Remain” vote.
Numerous factions within the British government — along with major banks, corporations and governments around the world — have warned of the fallout of voting “Leave.” Just last week, an official statement from the G7 — which includes the US, Canada, France, Germany, Italy, Japan and the UK — declared that Britain’s exit from the European Union would pose a "serious threat to global growth."
Meanwhile, George Osborne, British chancellor of the exchequer, has claimed that quitting the EU would cause an "immediate and profound" economic shock and could send the UK into a recession and leave the country "permanently poorer" with an economic contraction of 6 percent by 2030. And yet, if recent polls are any indication, the vote may be close.
Make no mistake, a Brexit would be bad for the fashion industry — not only here in the UK, where fashion contributed an estimated £26 billion ($38 billion) to the UK economy in 2014, but across the world.
The most immediate impact would come from the likely depreciation of the British pound. Already, the debate over Brexit has had a dramatic impact on the country's currency. In February, when Cameron officially announced the EU referendum, the pound plunged to a seven-year low against the dollar. If Britons vote “Leave,” its value could fall by a further 20 percent, according to HSBC.
For British fashion businesses, this could significantly impact the bottom line, as many outsource production to countries such as China, where they pay in dollars. (British clothing and home furnishing retailers source about three-quarters of their goods from Asia, according to financial services firm UBS.) A weaker pound would make these deals more expensive, leaving British businesses to either shoulder the costs, or pass them on to consumers.
On the other hand, British fashion companies that do a significant volume of their sales abroad — such as Burberry — could experience a tailwind in profits. “If their costs are largely in pounds, but their revenues are in euros or dollars, the euros and dollars they would get from abroad would buy a larger amount of pounds,” explains Luca Solca, head of luxury goods at Exane BNP Paribas.
The falling pound could also make tourism to the UK more affordable, boosting tourist spending in cities like London, a key destination for the travel retail sector. But by the same token, a weaker pound may force international brands to increase their UK prices, eating into any gains.
What's clear is that a Brexit would create more uncertainty in a world already plagued by growing global risk, further undermining consumer confidence. Certainly, among British consumers, “there would be a reduced confidence in their own wealth,” says Fflur Roberts, head of luxury goods at Euromonitor. This could limit Britons’ willingness to spend both at home and abroad — especially as shopping abroad, in stronger currencies like the dollar, would also become more expensive for Britons — hurting British and international fashion businesses alike.
If Britain were to exit the EU, the resulting changes to trade regulations would also have major consequences for thousands of fashion companies. As Ortelli points out, “Any additional duties, anything that is blocking the trade of goods is a bad thing for the [luxury] sector.”
Via its membership in the EU, the UK currently enjoys favourable terms with more than 60 nations. To prevent disruption of trade flows and maintain these terms, the country would need to urgently negotiate new agreements with both the EU and non-EU countries including the US, India, China, Japan and Australia.
Supporters of the “Leave” campaign contend that Britain would easily be able to renegotiate its trade agreements — much like Norway, which is not an EU member state — and still enjoy favourable trade terms with global markets. But at the moment, it is unclear what these new agreements might look like and how quickly they would come into effect. Roberto Azevêdo, director general of the World Trade Organisation, recently warned that “pretty much all of the UK’s trade [with the world] would somehow have to be negotiated,” while the International Monetary Fund declared that any re-negotiations would probably be “protracted.”
US president Barack Obama, for one, has stated in no uncertain terms that the UK would have to join "the back of the queue" to establish a new trade deal with America in the event of a Brexit.
Finally, for London’s world-renowned fashion education system, a Brexit would also be bad news. British fashion education benefits from EU investment in the form of research funding and initiatives that support innovation and bring together fashion designers, manufacturers and technology partners from across Europe.
London's famous fashion schools also attract talented students from the EU, who pay lower tuition fees than other international students. Many of these students choose to stay and set up their businesses in the British capital. Just look at London Fashion Week, where some of the most exciting designers are EU immigrants to the UK, hailing from countries like Serbia (Roksanda Ilincic), Portugal (Marques’Almeida) and Greece (Mary Katrantzou). These designers contribute to London’s reputation as a hub for fashion innovation and design.
“At a time when London’s affordability is already putting tremendous pressure on our creative sector, we need to be opening up to opportunity, not closing it down,” says Frances Corner, head of London College of Fashion, UAL. “There’s a lot at stake in this referendum, and not least for London.”
The EU’s open borders have also made it easier for companies like Paris-based Céline to operate on both sides of the English Channel (creative director Phoebe Philo works from its London office). “If the UK got out of the EU, then brands would have second thoughts about establishing their headquarters or their creative departments [here],” says Solca.
While a Brexit would not result in “all the Europeans who were coming to the UK with visas having to return to Europe,” says Ortelli, it is currently unclear how leaving the EU would impact the free movement of people in and out of the UK. If there were “less favourable rules for the moving of people across countries… fashion and luxury could suffer,” continues Ortelli.
Earlier in this month, more than 280 British creatives — including BoF’s Imran Amed, British Vogue editor-in-chief Alexandra Shulman and designer Vivienne Westwood — signed a letter supporting the campaign to remain in the EU. A survey by The Creative Industries Federation, which represents the UK’s creative industries, arts and cultural education, found that 96 percent of its members — including institutions like the University of the Arts London — also back the “Remain” campaign, citing access to EU markets and the movement of talent as key concerns.
In sum, a British exit from the EU would weaken the pound, negatively impact consumer confidence, upend trade regulations and threaten the free movement of talent — all of which would be bad for the fashion industry, both here in the UK and globally.
The United Kingdom’s EU Membership Referendum is being held on June 23, 2016. The deadline to register to vote is June 7.