Brexit: Where Are We Now?

Published Wednesday 20th February 2019

It has been nearly two years since the UK Government triggered the European Union’s Article 50, setting into motion Britain’s departure from the trading bloc. The reality facing Britain now is, that with only one month to go, an agreement has yet to be made, increasing the chances of a no deal Brexit.

Businesses are being forced to hedge their bets against one of the most unpredictable political environments in history. This confusion is having a profound effect on the UK business landscape and, depending on the outlook post-March, its impact could be far-reaching.

The Deepening Brexit Effect

Since the UK started the Article 50 procedure in 2017, economic figures have been steadily declining. A fall of around 15% in the valuation of pound sterling since the referendum and an increasing inflation rate have seen many business sectors face a slowdown; though, it is argued that many of these early negatives, felt during late-2017 and early-2018, were not purely a result of Brexit. For example, the UK’s GDP growth, in comparison with other major economies, had been slowing down since its peak in late 2014, nearly two years before the EU referendum.

Brexit’s effect on business has become undeniable in the last six months. Whilst markets were hesitant to react when a withdrawal agreement was drafted in November 2018, many major organisations put their weight behind it. Much of the support was born out of the belief that it was the only way of avoiding ‘no deal’, where the UK would immediately lose all EU customs and trading agreements after the 29th March. The Institute of Directors said that “avoiding no deal [was their] main priority”, despite split opinions on the agreement amongst its members.

Since November, however, the UK Government has been unable to pass the agreement. Initially, there was a delay to the parliamentary vote, expected in December but pushed back to the beginning of 2019. Businesses reacted negatively to this news, with the Confederation of British Industry and British Chambers of Commerce releasing similar statements outlining the frustration felt by many major firms. This uncertainty has only built since then, dictating much of the economic decline that has been apparent over the last three months.

How Can Businesses Prepare for Brexit?

Figures outlining UK annual growth for 2018 showed that the economy grew at its slowest rate since 2012 last year. This came as a result of a hugely disappointing final quarter, where economic growth dropped from 0.6% to 0.2%. Much of this was down to a steep decline in business investment, which fell by around 1.4% during Q4.

According to figures by Full Fact, around 44% of UK exports went to the EU in 2017. Businesses have frequently requested certainty, in whatever form, regarding the future trading agreement with the UK’s leading business partners. However, through political instability, the necessary arrangements have not been reached, leaving companies with no clear picture of the business landscape this year.

This current scenario has forced companies into contingency planning, another noticeable drag on the national economy. For many, this has taken the form of withholding investments, as evidenced by the economic figures. However, certain business sectors are reacting in other ways. Many in the retail, manufacturing and pharmaceutical industries have begun stockpiling. With doubt regarding the ease of travel through UK borders post-Brexit, major businesses have been forced to produce more goods than is currently necessary – evidenced by an unnatural spike in manufacturing production near the end of last year – to avoid any delays.

A Bank of England survey at the end of 2018 found that many UK businesses were still not changing their business plans to prepare for a no-deal scenario, despite it becoming increasingly likely. Whilst options such as stockpiling do not apply to some businesses, it is imperative that all companies are engaging in some form of contingency planning as Brexit draws closer.

One of the most effective ways of preparing for the challenging economic climate is with the assistance of cost reduction consultants like ERA. We have been working with major British businesses since 1992, and our specialists help companies streamline their supply chains. Our teams have experience in a range of cost areas, such as utilities and distribution, and will work with your business to help implement effective long-term procurement strategies. In this time of Brexit uncertainty, reducing expenses can help to secure your business going forward, so why not speak to us today and see what we could do for you?