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Japan’s hunger for our iron ore and coal made it our largest export partner, remaining in that position until it was superseded by China in 2010.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

The growing debt burden of retiring Australians

More Australians are retiring with larger mortgages and less super. This paper explores how unlocking housing wealth can help ease the nation’s growing retirement cashflow crunch.

Four best-ever charts for every adviser and investor

In any year since 1875, if you'd invested in the ASX, turned away and come back eight years later, your average return would be 120% with no negative periods. It's just one of the must-have stats that all investors should know.

LICs vs ETFs – which perform best?

With investor sentiment shifting and ETFs surging ahead, we pit Australia’s biggest LICs against their ETF rivals to see which delivers better returns over the short and long term. The results are revealing.

Family trusts: Are they still worth it?

Family trusts remain a core structure for wealth management, but rising ATO scrutiny and complex compliance raise questions about their ongoing value. Are the benefits still worth the administrative burden?

13 ways to save money on your tax - legally

Thoughtful tax planning is a cornerstone of successful investing. This highlights 13 legal ways that you can reduce tax, preserve capital, and enhance long-term wealth across super, property, and shares.

Warren Buffett's final lesson

I’ve long seen Buffett as a flawed genius: a great investor though a man with shortcomings. With his final letter to Berkshire shareholders, I reflect on how my views of Buffett have changed and the legacy he leaves.

Latest Updates

Retirement

Why it’s time to ditch the retirement journey

Retirement isn’t a clean financial arc. Income shocks, health costs and family pressures hit at random, exposing the limits of age-based planning and the myth of a predictable “retirement journey".

Financial planning

How much does it really cost to raise a child?

With fertility rates at a record low, many say young people aren’t having kids because they’re too expensive. Turns out, it’s not that simple and there are likely other factors at play.

Exchange traded products

Passive ETF investors may be in for a rude shock

Passive ETFs have become wildly popular just as markets, especially the US, reach extreme valuations. For long-term investors, these ETFs make sense, though if you're investing in them to chase performance, look out below.

Shares

Bank reporting season scorecard November 2025

The Big Four banks shrugged off doomsayers with their recent results, posting low loan losses, solid margins, and rising dividends. It underscores their resilience, but lofty valuations mean it’s time to be selective. 

Investment strategies

The real winners from the AI rush

AI is booming, but like the 19th-century gold rush, the real profits may go to those supplying the tools and energy, not the companies at the centre of the rush.

Economy

Why economic forecasts are rarely right (but we still need them)

Economic experts, including the RBA, get plenty of forecasts wrong, but that doesn't make such forecasts worthless. The key isn't to predict perfectly – it's to understand the range of possibilities and plan accordingly.

Strategy

13 reflections on wealth and philanthropy

Wealth keeps growing, yet few ask “how much is enough?” or what their kids truly need. After 23 years in philanthropy, I’ve seen how unexamined wealth can limit impact, and why Australia needs a stronger giving culture.

Sponsors

Alliances

© 2025 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.