Today, Prime Minister Theresa May, handed over a formal letter to Brussels, triggering Article 50 of the Lisbon Treaty and starting the process of the UK leaving the European Union. Although it will take at least 2 years of formal negotiations, in this time of uncertainty and mixed feeling, we look at the implications for British businesses. A white paper entitled the ‘Great Repeal Bill’ is due out tomorrow, which will set out the intent to review and analyse EU laws. This could result in the creation of a vast number of new laws and the hiring of numerous experts and lawyers to ratify new legislation.
Effects on the economy
Generally, the global economy has been on the up, which will be an advantage for markets. In the UK, there has been a great deal of activity over the past financial year, which has stimulated growth in some areas. Manufacturing is experiencing a current high, exports are looking more promising due to the weaker pound, and wage growth is running slightly higher than inflation. Is this sustainable? Only time will tell. However, confidence in the UK has seen continued interest and buy-in from foreign investors, and we hope this will remain during the forthcoming months. For an indicator of how well the UK market is doing, we suggest keeping an eye on the numbers for average earnings and inflation.
How long will trade negotiations take?
Usually, it takes around 5 – 7 years to create a new trade deal. When it comes to negotiating new trade deals with our European partners, as we currently have free trade with the EU, we won’t need to start from scratch. The Government is hoping to negotiate new trade deals with EU members (which will be managed through the EU Commission), over the next 2 years. Some industry leaders have suggested it is more likely these trade deals will roll into the 2020s, as new terms are agreed and then ratified.
Tariffs, Customs and Regulation
Concerns over Brexit include the cost of tariffs once we leave the Customs Union and Single Market. It is also likely that there will be changes to health and safety, border and aviation agreements. However, we will still need to cooperate with EU countries in terms of their technology and we will need to abide by their customs terms. Some fear this will result in additional paperwork and border delays for, e.g. transporting goods and moving waste. Such issues could cause a jolt to the UK economy, but this is a worst-case scenario – at best, nobody knows until new agreements and legislation are in place. We should have a clearer view on this by September 2018.
At this stage, it is still unclear what will happen to EU citizens living and working in the UK. It is thought that a ‘memorandum of understanding’ may be produced to assure EU citizens of their right to stay in the UK if they are employed by a UK business. If your workforce relies on a large number of EU citizens, then it is well worth evaluating any possible risk to your business and operations.
If you run or own a business, it is clear there will be some economic uncertainty ahead in the coming months. There may also be opportunities for businesses, once the new trade deals are in place. However, now is a good time to value your business and create a financial buffer in case of any market changes.
Image credit: Daily Star.