Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 163

Britain, Brexit and Australia

Countless articles have been written on Brexit, but most focus has been on the immediate panic selling after the vote. This commentary adds more context to the debate.

Britain’s long history of trading with Australia

As a British colony, Australia was heavily reliant on Britain for investment capital and export revenue. Prior to Federation in 1901, Britain bought virtually all of our exports (mainly wool and gold), making Australia one of the richest countries in the world per capita.

Britain remained our largest export partner until 1940, when it fell to second behind the United States. After the War our export mix changed dramatically, playing a vital role in the reconstruction and reemergence of Europe and Japan. By 1967, Japan’s hunger for our iron ore and coal made it our largest export partner, remaining in that position until it was superseded by China in 2010.

The chart below shows the declining role of Britain in Australia’s export revenues since the 1800s.

When Britain entered the European Community in 1973, it dismantled its preferential access system for former colonies such as Australia. By that time, however, its impact was relatively minimal given that Britain was buying less than 10% of Australian exports. This was less than the percentage of our exports going to Europe, and less than a third of what Japan was buying. Today, Britain accounts for just 1% of Australia’s export market.

Where to from here?

Britain was a late entrant into the European Community and never adopted the Euro. What was surprising about the Brexit vote, however, was the way in which voters rejected the pleas from both major parties to remain. The final result defied opinion polls taken in the days and even hours before the vote.

This surprise may explain the knee-jerk reaction of financial markets. Globally, ‘risk assets’ like shares, high-yield bonds and commodities (with the exception of gold) were gripped in a wave of panic selling. The money went into ‘safe havens’ such as cash, government bonds and gold.

Markets have since calmed, leaving investors to digest what it all means. The implications for Britain in the long term may well be benign or even positive. An exit would remove a seemingly unnecessary layer of bureaucracy that interferes with every aspect of daily life and costs tax-payers money. In addition Britons will win back some control of immigration, which was the catalyst for the sudden upsurge in dissatisfaction with Europe’s open borders policy. This renewed sense of independence and self-determination may boost spending, investment and employment.

Britain has always been a major source of investment capital for Australia and this may well increase if the Brexit proceeds. The impact of a British exit on trade should be minor in the medium to long term. As Europe accounts for half of British trade, the lower pound will help British exports. The pound fell 10% against the Euro after the vote, and is down 17% since this time last year. But it is still 5% higher than where it was three years ago, so it may need to fall considerably further to provide any real benefit for British exporters.

A more likely impact will be on British companies that operate in Europe under the EU passport system that allows firms to function across the EU without extra licensing in each country. Obtaining new licences should not be a problem for most companies but there will be inevitable disruption in the transition. Some very successful economies operate in Europe outside the EU, like Switzerland and Norway.

Fragmentation may accelerate

While Britain negotiates new treaties, short-term disruption and uncertainty will probably cause an economic slowdown and it may also slow growth rates in Europe, which has been stagnant since the GFC. The Brexit may also accelerate the end of 'Great' Britain. Scottish and Northern Ireland voters overwhelmingly voted to remain in the Union, leading to renewed calls for Scottish independence and the reunification of Ireland.

Another result of the vote is that it may accelerate fragmentation of the EU and Eurozone. It will certainly embolden anti-EU parties across the continent and there are already movements in France (Frexit) and the Netherlands (Nexit). It may also provide more impetus to internal independence movements such as Catalonia in Spain, Flanders in Belgium, Basque in France, and many others. Further political unrest could delay investment spending, leading to slower economic growth and higher unemployment.

More worrying is if the Brexit is seen as a backward step in the globalisation of trade and investment. The European experiment was undoubtedly good for the European recovery after World War 2, but since the GFC we have seen increasing signs of protectionism and currency wars between the big players – the US, China, Japan, and Europe.

 

Ashley Owen is Chief Investment Officer at independent advisory firm Stanford Brown and The Lunar Group. He is also a Director of Third Link Investment Managers, a fund that supports Australian charities.

 

  •   7 July 2016
  •      
  •   

 

Leave a Comment:

banner

Most viewed in recent weeks

Indexation implications – key changes to 2026/27 super thresholds

Stay on top of the latest changes to superannuation rates and thresholds for 2026, including increases to transfer balance cap, concessional contributions cap, and non-concessional contributions cap.

The refinery problem: A different kind of energy crisis in 2026

The Strait of Hormuz closure due to US-Iran conflict severely disrupted global energy supply chains. While various emergency measures mitigated the crude impact, the refined product market faces unprecedented stress.

The missing 30%: how LIC returns are understated, and why it matters

The perceived underperformance of LICs compared to ETFs is due to existing comparison data excluding crucial information, highlighting the need for proper assessment and transparent reporting.

Little‑known government scheme can help retirees tap into $3 trillion of housing wealth

The Home Equity Access Scheme in Australia allows older homeowners to tap into their home equity for retirement income, yet remains underused due to lack of awareness and its perceived complexity.

Origins of the mislabeled capital gains tax ‘discount’

Debate over the CGT discount is intensifying amid concerns about intergenerational equity and housing affordability. This analysis shows that the 'discount' does not necessarily favor property investors.

Div 296 may mean your estate pays tax on assets your beneficiaries never receive

The new super tax, applying from 1 July, introduces more than just a higher rate on large balances. It brings into focus a misalignment between where wealth sits and where the tax on that wealth ultimately falls.

Latest Updates

The ultimate superannuation EOFY checklist 2026

Here is a checklist of 28 important issues you should address before June 30 to ensure your SMSF or other super fund is in order and that you are making the most of the strategies available.

Retirement

Two months into retirement

A retirement researcher's take on retirement and her focus on each of her six resource buckets to stay engaged during the transition and beyond.

Superannuation

Markets have always delivered for super fund members. What if they don’t?

What happens if market resilience in the face of ongoing geopolitical tensions ends? Potential decade-long market weakness shows the need for contingency planning.

Retirement

We tend to spend less in retirement …

Studies show that a drop in expendure during retirement leads to a happier retirement. But when costs ramp up again later in life, it's a guaranteed income that makes spending more hurt less.

Shares

Can you value a share just using dividends?

A cow for her milk, a stock for her dividends. Investors are too quick to dismiss this valuation technique. 

Property

The 25-year property trust default is being questioned

The 33% CGT discount rate being floated isn’t random. It sits at the structural break-even between trust and company for the multi-property cohort. That’s driving the conversation we’re hearing now.

Investment strategies

Are active managers bringing a knife to a gunfight?

How passive investing has permanently changed market structure — and why sophisticated tools are now the price of survival.

Sponsors

Alliances

© 2026 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.