Prime Minister Theresa May revealed what many had feared, the UK could be heading for a hard Brexit which may have significant implications for British businesses. At the top of the list is immigration, which the Government plans to limit once the UK officially departs the single market. This itself carries significant problems for many businesses who rely on EU workers and more importantly, access to the European markets for goods and services.
The silver lining lies in May’s guarantee of EU workers that already reside in the UK, but even this has limited promise if the UK-EU trade relations change significantly in the year’s hereafter. A promise of a Global Britain sounds flattering at best, but offers no solutions to the huge trade deficit the UK faces if it cannot have continued access to the single market.
A Global Britain will not happen overnight, if Canada shared the same optimism when they signed up to CETA, they would have been thoroughly disappointed knowing a free trade agreement with the EU would take 7 years. The UK does not have the luxury of time, the Chief EU negotiator Michel Barnier wants Brexit wrapped up in 18 months, by which the UK cannot sign new trade deals until this point.
Instead, the Prime Minister wants all the pros of EU membership without the membership part, and is happy to pay for the access the UK needs. There appears to be a significant change in tactics from the Government and Bank of England. A more defensive, protectionist stance has emerged from the Chancellor Philip Hammond who alongside Mark Carney, stands to believe the EU has just as much to lose from an aggressive approach to Brexit.
So, what did we actually learn from the PM’s Brexit strategy? If you believe the EU isn’t bluffing, the UK will not have access to the single market without free movement of persons, capital, goods and services. Either May has to abide by the rules of the club or accept no deal at the end of negotiations.
This scenario is not likely to play out, as it leaves both the UK and EU locked out of each other’s vital markets and brings with it disruption for businesses on both sides of the continent. The Prime Minister has called the bluff on this check mate scenario, and she’s hoping it may pay off at the negotiation table.
Now imagine your organisation of 28 employees faces collapse because one member doesn’t like how things are managed, are you likely to bend the rules for one and risk backlash from the other 27? If the UK gets special treatment others will demand the same, and the whole European project faces collapse.
There is no crystal ball that can predict how Brexit will play out, but if common sense prevails the answer lies somewhere in the middle. Talks of a transitional Brexit have grabbed the attention of many on both sides of the continent, and whilst I do not personally believe the EU will soften their stance, a transitional Brexit is far superior to a cliff edge Brexit for both British and European businesses.
Ideals do not always unravel but there are steps that businesses should take ahead of the UK’s planned exit in March. If your business is vulnerable to currency fluctuations, consider the option of a forward contract which allows you to lock in an existing rate of exchange for up to two years. In the event Brexit uncertainty heightens and the Pound falls in value, you have the safety of a guaranteed rate of exchange for the duration of Brexit negotiations.
It’s also worth noting that the UK is still a member of the EU, and will be until Article 50 draws to an end. This is at least two years from the invocation of Article 50 which is expected in March, so make use of the European markets and membership benefits in the meantime.
This commentary is from a chief analyst at Foreign Currency Direct.