What’s wrong with a no deal Brexit?
Firstly, according to the CBI, a no deal Brexit risks putting thousands (if not hundreds of thousands) of UK jobs at risk. The prospect of coming out of the Brexit process and reaching the deadline with a no deal outcome has meant SMEs are already triggering no deal contingency plans, resulting in millions of pounds of investment not coming into the UK and hindering growth prospects.
The CBI’s biggest fear is that MPs voting on the Brexit deal don’t understand the dangerous results a no deal Brexit could have on individual businesses and the wider UK economy. Prospects like rising unemployment, higher interest rates and lower house prices are all just a reflection of the fact that investment, growth and public spending are connected aspects of a no deal Brexit.
A quick look at the Brexit timeline shows how much the negotiations and the lack of clarity can affect the FTSE 100. An agreement with the EU to a transition period last March resulted in a huge drop in the FTSE 100 live price.
What are business leaders saying?
As an indicator, the FTSE 100 index is an effective mirror to the UK economy, reflecting the increasing concerns felt by business leaders; not just in London, but across the UK. Both the FTSE 100 and the pound fell sharply with the news of the original Brexit vote and neither have recovered. The Bank of England has also been hesitant to raise interest rates so far while acknowledging that business borrowing is also down.
The real problem is simply the lack of any kind of certainty or clarity in what is going to happen when the Brexit deadline is reached. This is an issue that hasn’t been helped by resignations and unrest from within the government from both Eurosceptics and Remainers. Those resignations were prompted in part by the publication of a government white paper that didn’t answer some of the important questions.
Rolls Royce chief executive Warren East has spoken out about the government white paper and represents the growing opinion of many other business leaders when he said, “we, as a business, cannot rely on anything in the white paper or anything the government says”.
Sectors like the car industry are undergoing a kind of Brexit freeze. Recent decisions by Jaguar Land Rover to make wholesale job cuts and BMW’s warning of closing factories in the UK certainly won’t make the manufacturing economy more buoyant.
Mike Jakeman, the senior economist at Price Waterhouse Cooper, added: “There is growing evidence that the economy has weakened since summer”, noting that GDP data from the ONS shows flat or very marginal growth in recent months and that consumer price inflation is slowing because the retail sector is struggling. “It will be Brexit that determines the Bank’s next move; its monetary policy response could be in either direction”, he concluded.
If Brexit happens with a no deal, then there are going to be severe consequences for the UK’s business community, which sees itself as being left to sort out the bureaucratic nightmare in trade and business with the EU and beyond. However, there is an increasing sense that MP’s and the government understand this and are looking to avert a no deal scenario. As business sectors have been affected and investment shortfalls, which have caused share prices to fall and the pound to suffer, an agreed deal is yet to emerge that keeps everyone in London happy. One thing is certain though, a no deal is not a welcome outcome.