By Marcus Turner-Jones
Since the announcement of Brexit in 2016, British businesses have been plagued by uncertainty. While an initial negotiation period was outlined and agreed to, in which the Government would negotiate stringent terms with the European Commission, the deadline is now fast approaching.
Set to leave the EU on March 29 next year, the divorce is now less than a year away, with negotiations still in full force. With few announcements made, there continues to be ongoing deliberation about how this will impact UK businesses. Unfortunately, the cracks are beginning to show.
In 2017, 71% of firms in the finance and banking sector (surveyed by the Chartered Institute of Procurement and Supply), stated that leaving the EU was hindering their ability to plan, while 50% of procurement specialists expressed concern about increasing supply chain costs.
In March, a further transition period was agreed. Brexit negotiator, Michel Barnier, announced that a transition deal had been settled. This would allow Britain to stay within the single market for a further 21 months. Lasting until the end of 2020, during the transition period, UK businesses would continue to benefit from the single market and retain economic benefits associated with the customs union.
This deal has already sent waves through the British business community. In a Deloitte survey conducted amongst 106 chief financial officers, only 12% believed the current climate to be a good time to tackle risk, which increased to 23% after the announcement.
Of the deal, David Davis said: ‘Our teams have worked hard and at pace to secure the terms of a true-limited implementation period that gives a certainty to businesses and citizens.’ But just how much certainty will this provide?
Currently, many UK firms utilise the single market to move goods freely, without tariffs or restrictions. However, with a focus on ‘hard Brexit’ and negotiations still in progress, concern lingers amongst businesses lingers surrounding post-Brexit trade deals and tariffs.
Should the terms of the negotiations be unfavourable, British businesses would be likely to incur an increase in operating costs (including a rise in export expenses), which could impact bottom line. However, Australia have offered an olive branch, in the form of joining the Pacific trade group, but this will not make up for losses made in the EU.
While businesses can remain hopeful that the UK will retain a positive relationship with the EU, deliberation is ongoing, with the outcome undecided. This feeling has been fuelled by Roberto Azevedo, the Direct-General of WTO, who last month said: ‘we are not quite clear at this point in time what the outcome is going to be.’
Although the Government has secured an additional period in which time to negotiate, independent trade deals will not come into effect until 2021. Furthermore, the leaving process is the current focus and will remain top of the agenda until its completion next year. As such, it could be some time before negotiations start and individual deals are struck.
So, what does this meaning for the financial sector?
In order to prosper throughout this period, it is essential for financial directors to plan. They should ensure that the company is adequately prepared for a variety of potential Brexit scenarios and create comprehensive contingency plans.
This includes more than just trade, alone. Brexit also has ramifications for many other areas of business, including the supply chain, workforce and legal documentation. By planning ahead, finance directs can prevent firms from feeling the full storm of Brexit, limiting the impact felt by the introduction of tariffs and quotas.
On the other hand, Brexit also has the potential to offer opportunities. If approached in a proactive manner, financial directors can use this period to identify opportunities for innovation, plan for new markets, and focus on the potential for growth.