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Last week, Britain stunned the world by voting on a referendum to leave the European Union, known as Brexit. Now the stunned world is trying to figure out what the implications of this decision will be for Britain, European Union nations, and the rest of us.
Some experts say that Britain's decision could lead to a slowdown in local small business lending by banks and decreased spending by American consumers, which directly impacts businesses. Let's consider why this might be and what Brexit means to you.
Although no one knows exactly what will happen next, the Brexit vote has upset world markets and that is usually a sign that banks will become more conservative about lending. When markets are unpredictable and banks lack confidence, it is much more difficult to convince lenders to invest in businesses. The smaller and more innovative the business, the bigger the risk will seem and bankers seek to minimize risk, especially in volatile markets.
With much uncertainty ahead as Britain attempts to extract itself from its partnership with the 27 other European Union nations, it is likely that there will be continued market instability for months and maybe even years to come. According to Fox Business, the flow of credit for small businesses in the United States has improved dramatically, and approval rates were on the rise. This trend is expected to wane as banks grow more conservative about lending again due to Brexit-related insecurity and apprehension.
CNN Money reports that American businesses could be dealt a blow by Brexit because U.S. consumer spending depends on market confidence. When consumers see stock market volatility they are less inclined to spend at home. "The keys to whether the U.S. economy is affected significantly will be whether equities tumble enough to have a major impact on business and consumer confidence," Jim O'Sullivan, chief U.S. economist at High Frequency Economics, a research firm, told CNN.
But one thing is certain. Change is coming and change leads to market volatility. If the last week or so is any indication, in the U.S. and other nations we can expect a lot of fluctuations, fear, and predictions and very little clarity on Brexit's significance. For now, the best advice anyone can give you is the guidance given by the British government during World War II. Keep calm and carry on.
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