16 Jan 19

UK business fears 'no deal' Brexit is more likely

British business leaders have expressed dismay at the uncertainty facing the economy following last night's rejection by MPs of the withdrawal agreement negotiated between the UK government and European Union.

The crushing defeat of Prime Minister Teresa May’s plans – the largest ever defeat suffered by a British government – appears to leave open three outcomes:

Three possible scenarios

  • The first would see the UK leave the EU without a withdrawal agreement on 29 March. This ‘no deal’ exit, which would see the UK trade with the EU on World Trade Organisation (WTO) lines, will be the automatic outcome unless the UK parliament can agree upon an alternative plan that is also accepted by the other 27 EU nations.
  • The second scenario involves significant changes to the current withdrawal agreement, most notably on the duration of any ‘backstop’ arrangement to protect frictionless, borderless trade between Northern Ireland and the Republic of Ireland.
  • And the third scenario is a ‘people’s vote’, an idea that is rapidly gaining momentum. This would involve a second referendum allowing the public to vote again, now that the terms of the UK’s departure from the EU is known. This could conceivably give UK citizens the choice between no deal, the government’s current withdrawal agreement, and remaining within the EU.

Motor industry anxious
For the UK’s automotive industry, a 'no deal' outcome would be a nightmare scenario.

Mike Hawes, chief executive of the SMMT (Society of Motor Manufacturers and Traders), said, “The vote against the Brexit deal on the table brings us closer to the ‘no deal’ cliff edge that would be catastrophic for the automotive industry. All sides in parliament must work together to find a way forward and put the necessary mechanisms in place to prevent this happening and explore alternatives that protect our future. Leaving the EU, our biggest and most important trading partner, without a deal and without a transition period to cushion the blow would put this sector and jobs at immediate risk. ‘No deal’ must be avoided at all costs. Business needs certainty so we now need politicians to do everything to prevent irreversible damage to this vital sector.”

The uncertainty surrounding Brexit has already caused a substantial depreciation of the pound in recent months. This has driven up the cost of imported cars and parts, and WTO trading rules would bring further cost increases. The SMMT forecasts that WTO would add £1,500 to £1,700 to the price of a new car, and add 10% to the cost of servicing and maintenance due to higher component part costs.

Back in the autumn, Gerry Keaney, chief executive of the BVRLA (British Vehicle Rental and Leasing Association) said, “The prospect of being impacted by import tariffs on new vehicles tariffs and restrictions around employing EU staff will all be of concern to members, indeed these are issues affecting every UK organisation.”

Business reaction
As for the immediate future, the Confederation of British Industry, which represents the interests of businesses believes last night’s vote makes the ‘no deal’ scenario more likely.

Carolyn Fairbairn, CBI director-general, said,“Every business will feel no deal is hurtling closer. A new plan is needed immediately. All MPs need to reflect on the need for compromise and to act at speed to protect the UK's economy.”

At the British Chambers of Commerce, which serve local business communities, director general Adam Marshall, said, “There are no more words to describe the frustration, impatience, and growing anger amongst business after two and a half years on a high-stakes political rollercoaster ride that shows no sign of stopping. Basic questions on real-world operational issues remain unanswered, and firms now find themselves facing the unwelcome prospect of a messy and disorderly exit from the EU on March 29th.

“The overriding priority for both government and Parliament must now be to avoid the clear danger that a ‘no deal’ exit on the 29th of March would pose to businesses and communities across the UK. Every second that ticks by sees more businesses spending money on unwanted changes, activating contingency plans or battening down the hatches and halting investment, as they try to anticipate a future that is no clearer now than it was at the time of the referendum result.”

New government?
In this fast-changing environment, the government must survive a vote of no confidence this evening. Should it lose the vote (most commentators expect it to win), the UK will face a general election, which would delay a Brexit resolution still further.

Authored by: Jonathan Manning