A survey by the Scottish Chambers of Commerce in October 2018 found that 21% of firms were less optimistic about the business environment than they were three months earlier. Uncertainty about the future relationship with the European Union is a primary reason for concern.
Following the announcement of Theresa May’s draft Brexit arrangement, Chancellor Philip Hammond held a conference call with many senior business figures, urging them for support. Theresa May has also called for business support over Brexit, but the political landscape is making it difficult for organisations to contribute.
The Complicated Future Relationship
The United Kingdom joined the European Union as part of its first expansion in 1973, and this has led to a deep industrial relationship. In 2017, the United Kingdom exported 44% of its goods and services to the EU, totalling £274 billion. Also, 53% of imports into the UK came from the European Union. These figures are a result of the competitive and stable pricing underpinned by the EU trading tariff regulations, which has allowed major industries to purchase with confidence.
Regardless of the eventual exit deal, it seems that the ‘frictionless trade’ currently enjoyed by the UK with the EU will be unavailable. Whilst most businesses are willing to accept a change in the competitive landscape, many are unsettled by the lack of clarity regarding what that landscape will resemble. In the conference call hosted by Philip Hammond, a senior banker raised concerns about the lack of detail for future financial services regulations– a concern shared across many industries.
Businesses take comfort in the EU’s desire to keep Britain closely tied in future arrangements. However, the future political battle over such an agreement means that ‘no deal’ remains a potential reality. Gavin Patterson, the outgoing chief executive of BT, said that the company is still planning for a no deal scenario, and many others will be pausing on investments until there is more certainty. This combination of a volatile political landscape and a lack of clarity is creating an unsettling business environment for all.
Mark Carney offers opinion as Governor of the Bank of England
As ever with Brexit, opinion is divided: Mark Carney, Governor of the Bank of England sees reasons to be optimistic.
“We welcome the transition arrangements in the withdrawal agreement. It’s at theheart [of the deal],” Carney told MPs on the Treasury select committee, a week after an agreement on deal terms was made between the Prime Minister and the EU. “[The deal] improves our ability to discharge our function relative to having no deal.” He further warns that failing to agree on a Brexit deal before the deadline would deliver a “large negative shock” to the UK economy, which may have a prolonged effect on growth, employment and supply chains. No deal may cause an “unprecedented supply shock” to the UK economy with few historical or international comparisons to draw lessons from. “It wouldn’t be a happy situation to be in,” he said. “There is a reduction, all things being equal, in the supply capacity of the economy – that means lost output, it means lost jobs, it means lower wages, it means higher inflation.”
Future Opportunities
On the other hand, opportunities are beginning to emerge out of the process. For example, Japanese Prime Minister Shinzo Abe said that the UK would be welcomed into the Trans-Pacific Partnership (TPP) trade agreement after Brexit, opening up potential new markets.
Whilst Brexit optimists will be looking at a range of overseas markets like the TPP, it is also worth taking a moment to analyse whether our businesses are in the best possible shape for the events ahead.
Many proactive enterprises are already taking advantage of Brexit to organise their internal supply chains before March, and you can too with the assistance of procurement service companies like ERA. We have been supporting UK-based firms for over 15 years and continue to help organisations reduce costs as Brexit approaches. Our clients have saved millions in areas such as logistics and insurance thanks to our experienced specialists and long-term approach.
If you want to perfect your procurement strategies before Brexit, get in contact with our team and see what we can do for you.
About the Author: Nick Clement, joined ERA after more than twenty five years in the Mailing and Distribution Industry. He began his career as an area sales representative, successfully fulfilling a number of strategic roles culminating in a board appointment after a period working in the company’s European offices in Frankfurt and Berlin.