Frederick Achom on the likelihood and consequences of a no-deal Brexit

Freddie Achom- no deal brexit SMEs2

The country is currently waiting with bated breath to see who the new Prime Minister will be, following Theresa May’s resignation for failing to agree Brexit terms with the European Union.

As the business community waits to see what will happen, it’s still unclear how close we could be to a no-deal Brexit, and the fallout this would realistically cause. The two contenders for the Prime Minister position, Jeremy Hunt and Boris Johnson, both say they are prepared to take the UK out of the EU with no deal. So, where does this leave us?

And in particular, where does it leave the small and medium sized businesses community that makes up more than 99% of the private sector, and forms the backbone of the UK’s economy?

Industry opinion on a no-deal Brexit

In this post I’m going to look at the most recent comments from industry experts, manufacturing bodies and the Bank of England, to gauge the consensus of opinion regarding no-deal Brexit.

Make UK is a trade body that covers many businesses across 19 different sectors. Companies represented by the body include BAE Systems, Toyota, Airbus, Nissan, Ikea, Lush Cosmetics and Warburtons. The body told the Guardian that manufacturers are going through the biggest drop in orders for around seven years.

Seamus Nevin is chief economist for the group and believes that Hunt and Johnson’s tough act on a potential no deal Brexit demonstrates little practical understanding of the consequences for UK’s businesses. Johnson is the more vocal of the two regarding no-deal, basing most of his campaign on a ‘do or die’ attitude to the UK leaving the trading bloc. Hunt, on the other hand, began his campaign much more cautiously, but is now echoing Johnson’s attitude, and has pledged a deadline of 30 September 2019 for his final decision on no-deal should be become Prime Minister.

Spending decreasing across business sector

Businesses across the UK are slashing spending, and the corresponding decrease in manufacturing reflects a general mood of uncertainty across the sector. And while some commenters insist that this manufacturing decline is a direct response to the stockpiling that occurred in Q1 2019 to prepare for a possible no-deal Brexit on the original exit date of 29 March 2019, the purchasing manager’s index (PMI) suggests that it’s a continual decline, rather than a one-off event.

The PMI acts as a monthly barometer check on supply and demand across 19 different industries in the UK. The data gives an accurate view of the economic trends of the moment, as they respond to external factors. It shows whether manufacturing is contracting, expanding or remaining the same.

The latest PMI figures show the biggest contracts (50.3 to 47.2) since October 2012. Make UK says that this shows that these 19 industries are reporting fewer export deals as other countries lose confidence in the UK because of Brexit uncertainty. The British Chambers of Commerce agree with Make UK, saying that domestic manufacturing orders are at their lowest since 2012.

Government figures show that the UK’s economy grew in Q1 2019 by 0.5%. This is most likely due to the aforementioned stockpiling to prepare for a possible no-deal Brexit at the end of March. The boost this gave to the economy is now in reverse, and according to the Bank of England, growth stopped completely by April 2019.

UK would revert to WTO rules

It’s safe to say that there is little obvious support for a no-deal Brexit from high profile commenters across the manufacturing and business world. The country is currently counting down to the extension to Article 50 requested by Theresa May, which takes the date for Brexit to 31 October 2019.

And while Hunt and Johnson continue to battle it out for the role of Prime Minister, the EU has been clear that there is no more time or room for negotiation. If the country does exit with no deal, then there will be no transition period at all. This means that every current arrangement with the EU will simply stop on 31 October.

The UK would then revert to trade rules set by the World Trade Organisation (WTO), and would be subject to external tariffs by the EU. It’s also possible that the change in rules and regulations cold lead to the EU rejecting British made products.

In some ways, the business community is still uncertain as to what the consequences of a no-deal Brexit would be. However, regardless of the outcome, UK businesses and SMEs must prepare for every possible scenario. The new Prime Minister will be announced on 22 July, and after this I expect to see clarity and support for SMEs laid out by the Government. For now, however, it’s a waiting game.

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