Brexit means new challenges for businesses.

On November 13^th, 2018, the United Kingdom and the European Union reached an agreement over the conditions of withdrawal of the United Kingdom  from the European Union. This text, approved by the Conservative government, has yet to be ratified by the UK Parliament by the end of the year. However, it seems to put an end to a tough, two-year negotiation - at least four Ministers resigned to show their opposition and the idea of a second referendum in some parts of the population - is getting more and more persistent.

Over the past two years, both parties have been negotiating Brexit which has sparked off many doubts and worries within the British population and businesses.

  The risk of a “no deal” would jeopardize plenty of companies because, firstly, leaving the U.E. means those companies would pay tariffs barriers which would raise prices. Secondly, environmental and health regulations won’t be the same anymore. For instance, the car industry would be severely impacted because a lot of companies have supply chain set up in the UK. It'd encourage EU car manufacturers to reconsider their investment. Furthermore, according to The Business, Energy and Industrial Strategy (BEIS) Committee, more than 100 thousand jobs are put at risk. “The Society of Motor Manufacturers and Traders (SMMT) estimated the introduction of trade barriers to result in a £4.5bn drop in exports.”[1] If the UK doesn’t comply with the regulations already put in place by the EU, British products won’t be able to make it to the EU market. As a result, competitiveness would face serious repercussions.

A rise in prices would lead to a decrease in demand and therefore, in production. The fear of redundancies for workers is relevant.

            As for the agriculture and fishing industries, the United Kingdom imports approximately 40% of consumer goods and would have to pay more if tariffs barriers were put in place. Entering the country could take much more time and perishable products such as milk would be wasted. The U.E’s farmers would pay the price because it’s a loss of income. Also, the UK’s food and drink sector employs more than 400,000 people “a third of whom are EU nationals.”[2] But, EU workers could be forced to leave the country or the process to stay in the country may be long. Consequently, this sector would face a shortage of skilled workers and would have to be attractive for UK workers.

            As for the financial services industry, as you may already know, the “City” is the world’s second leading financial centre. It means that it dominates EU and the UK transactions, operations. One of the main challenges for this sector is how to preserve “passporting rights”? -  An authorisation “to provide core banking services to businesses and customers across the EU”.[3]  According to Grant Thornton, “Brexit could restrict the free movement of banking professionals between Europe and the UK.”

            All the companies who want to penetrate the UK market or are already established will have to increase their bureaucracy and administration costs to deal with the legal framework.

            For example, lots of U.S. companies may be impacted by Brexit because the U.K. is a gateway to trade with other EU countries. “A survey by the American Chamber of Commerce to the EU estimates that Brexit could potentially threaten 1.4 million jobs and $593 billion in direct investment from U.S. companies.” [4]To counter these negative effects and protect U.S. companies, President Donald Trump promised that a trade agreement with the United Kingdom will be signed once the transitional period is over.

            If we take into consideration the fluctuations of the pound, British consumers will be confronted with inflation as the money supply will grow significantly and will have less purchasing power. Moreover, Imports will be more expensive and so will the imported products and raw materials from overseas.  However, it will help to be more competitive.

            As a consequence, companies especially EU and non EU multinationals like Vodafone are considering relocating their offices in the E.U. Member States. Some have postponed their capital investment projects in the country (e.g. Nissan, who planned on investing in their Sunderland plant.)5 Following the referendum results, The UK's SMEs (small and medium businesses) benefited from a drop in sterling to sell more abroad.

            To conclude, businesses are dealing with the aftermath of Brexit. E.U. companies have to think about relocation strategies to EU countries to benefit from common regulations, a single market of more than 500 million customers. Maybe, the real loser of this deal is the population as they would have to pay more for some products because of inflation and increasing imports costs.

Written by SCARPITTA Elina

For further information:

           

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[1] https://www.parliament.uk/business/committees/committees-a-z/commons-select/business-energy-industrial-strategy/news-parliament-2017/automotive-brexit-report-17-19/

[2] https://www.parliament.uk/business/committees/committees-a-z/commons-select/business-energy-industrial-strategy/news-parliament-2017/brexit-food-drink-report-17-19/

[3]https://www.charteredaccountants.ie/News/series-8-back-to-brexit-basics-what-losing-passporting-rights-means-for-uk

[4] https://www.pnc.com/content/dam/pnc-ideas/articles/why-does-brexit-matter-to-US-companies.pdf