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Brexit Update: What You Need to Know

September 25, 2018

Brexit Update

Brexit is complex and highly political, and it’s not clear what the future looks like for the UK or the EU, even as deadlines loom. But the impact will be significant – on companies and consumers in the UK and the countries they do business with. Here’s what you need to know right now.

Britain + EXIT = Brexit

On June 23, 2016, British voters took part in a referendum to decide whether the UK should leave or remain in the European Union. Leave won by 51.9% to 48.1%. More than 30 million people voted – almost 72% of eligible voters. 

Little is certain, and many deadlines have been changed since the Brexit referendum, but as things stand now, the UK is scheduled to leave the European Union at 11pm UK time on Friday, 29 March 2019. That deadline can be extended if all 28 EU members agree, but at the moment all sides are focusing on that date as being the key one.

Many deadlines have been changed since the Brexit referendum, but as things stand now, the UK is scheduled to leave the EU on March 29, 2019.– Click to tweet

T minus 6 months – and no deal yet

Just months remain for the British government and the European Union (EU) to negotiate a divorce settlement that will prevent political, economic, and human disaster on both sides of the English Channel. (The UK is set to leave the EU on March 29, 2019.) So far, the most likely deal appears to be no deal at all.

Here’s what needs to happen before March 29: 

  • The UK and EU need to negotiate a ‘Withdrawal Agreement’ that specifies a process and timeline for the UK’s withdrawal. Both sides seem to agree that if the EU’s 28 national parliaments are to have time to vote on the proposed agreement before March 29 it will need to be presented by mid-December. Sticking points in the negotiation include citizens’ rights, cooperation on the border with Ireland, and the financial settlement.  
  • The UK and EU need to agree on the terms of their relationship post-Brexit. Provided a deal is reached on the Withdrawal Agreement, negotiations covering economic and security cooperation will need to be completed by December 2020, which is the end of the proposed transition period.
  • The UK must negotiate agreements with trading partners, to replace the agreements it had as an EU member. Reports suggest that there are at least 700, covering trade and non-trade relationships with non-EU countries, which will cease to apply to the UK once it has left the EU.

There doesn’t seem to be agreement in the UK – let alone the EU – about the process of withdrawal, or about what the future relationship should look like. But the consequences would be dire: if no Withdrawal Agreement is made, there would be no transition period to ease the impact of the UK’s exit. 

Chaos would be massive, with complete uncertainty around trade, migration, regulation, and more. “Brexit: six months to go,” a think tank report published in late September, says that secrecy around Brexit has meant the government has failed to give businesses sufficient time to prepare.

If the UK and the EU can’t negotiate a Withdrawal Agreement, there will be no transition period to ease the impact of the UK’s exit.– Click to tweet

Cross-border chaos

Even if the UK and EU negotiate a Withdrawal Agreement, the impact of Brexit will be significant.The EU was established after WWII with six founding members to foster economic cooperation. The idea was that countries that do business together are more likely to avoid going to war with each other. The UK joined in 1973. After 45 years of EU membership, Britain is deeply interwoven with the European continent.

Currently Britain is part of the EU customs union – the group of countries that have agreed not to charge each other custom duties (aka import taxes). This also means EU leaders set Britain’s tariffs on imports from non-member countries. Come March 2019, the UK will have to negotiate its own trade terms with partners like the U.S. and China, as well as the EU.

Everyone would be impacted: In the UK alone, there are more than 140,000 different businesses that will need to be ready for changes at the border, for instance, once Britain is not part of the EU. 

In the UK alone, there are more than 140,000 different businesses that will need to be ready for Brexit changes at the border.”– Click to tweet

Examples of the impact that new cross-border trade rules (or lack thereof) could have include:  

  • A nightmare at the borders. According to British shipping companies, 10,000 large trucks pass through the Port of Dover every day. With EU rules requiring just a brief inspection and one-page form, most are processed in less than two minutes. Adding just two more minutes to the process would quickly result in a traffic jam 30 kilometers (about 19 miles) long, say the shipping companies.
  • Billions in new tariffs. If the UK leaves the EU without a favorable trade deal, it could end up costing at least 5.7 billion euros (or $6.7 billion) a year in vehicle tariffs. 
  • Very pricey salads. Since the early 1980s, when Britain was about 80 percent self-sufficient in food, it has steadily slid to about 60 percent. The bulk of imported food comes from Europe. The UK has a huge deficit in fruit and vegetable production. If British consumers are suddenly required to cover the added cost of tariffs on billions of fruit and vegetable imports, it could make for some very pricey salads.

International Monetary Fund (IMF) managing director Christine Lagarde said that no conceivable Brexit deal will be as beneficial for the economy as staying in the European Union. “Whatever the deal is will not be as good as it is at the moment.”

It could trigger a slowdown in the global economy. 

Expressing growing concern at the possibility of a “no deal” next March, Lagarde said, “If that happened there would be dire consequences. It would inevitably have consequences in terms of reduced growth, an increase in the [budget] deficit and a depreciation of the currency.”

“IMF chief Christine Lagarde says the consequences of ‘no deal’ on Brexit would be dire.– Click to tweet

How businesses are preparing

It’s the worst case scenario by far, but many companies are proceeding as if no deal will be reached. “The financial system is already operating on the assumption that there is no agreement,” UBS chief executive Sergio Ermotti told Bloomberg TV.  

“The financial system is already operating on the assumption that there is no agreement on Brexit, says UBS chief executive.– Click to tweet

Trying to prepare amid almost complete uncertainty, some businesses have begun stockpiling supplies. Pharmaceutical company AstraZeneca is increasing the amount of medicines they have on hand in Europe by about 20%. Aircraft manufacturer Airbus, which employees 14,000 people at 25 locations in the UK, also wants to have enough aircraft parts in stock by the end of March to last for a month. Even Cadbury’s is stockpiling ingredients – for its crème eggs and chocolate biscuits.

Others are reassessing their UK investments. In a formal Brexit risk assessment published in June, Airbus executives concluded that if the UK left the EU next year without a Withdrawal Agreement and transition plan, Airbus would need to reconsider its investment in the UK. Deutsche Bank has announced it will move assets from London to Frankfurt. The Swiss bank UBS has chosen Frankfurt as the base for its EU operations.

Large companies have spent huge amounts of money trying to prepare for Brexit, much of it stockpiling supplies.”– Click to tweet

A high stakes game of chicken

If the UK leaves without a deal in March 2019, just a fraction of the processes and systems required for life outside the EU will be in place. As the “Brexit: six months to go” think tank report concludes, “Some of government’s contingency plans appear to be completely dependent on the EU bending its rules to apply goodwill or strike mitigating agreements.”

Since Brexit impacts the lives of hundreds of millions of individuals and trillions of dollars in economic value, that’s a high stakes game of chicken.

 

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