U.K. companies have ratcheted up their preparations for a disorderly “no-deal” Brexit as best they can over the past couple of months, the Bank of England said Thursday.
With the prospect of a chaotic Brexit potentially eight days away, a survey by the central bank’s agents showed that around 80 per cent of companies “judged themselves ready” for such a scenario, in which the country crashes out of the European Union with no deal and no transition to new trading arrangements with the bloc. That’s up from around 50 per cent in an equivalent survey in January.
For decades, trading with the rest of the EU has been seamless. A disorderly Brexit could see the return of tariffs and other restrictions on trade with the EU, Britain’s main export destination.
To prepare, some firms have moved jobs and operations to the EU to continue to benefit from its seamless trade. Many have had to learn how to file customs declarations and adjust labels on goods. Exporters of animals are learning about health checks they will need to comply with.
According to the bank’s survey, however, many of those companies preparing for a “no-deal” Brexit said “there were limits to the degree of readiness that was feasible in the face of the range of possible outcomes in that scenario.”
There’s only so much companies can do, for example, to prepare for new tariffs and exchange rate movements.
Britain appears headed for a “no-deal” Brexit on March 29 if Prime Minister Theresa May fails to win parliamentary support for her withdrawal agreement with the EU.
She is meeting EU leaders in Brussels on Thursday in an attempt to get support for a delay to the country’s departure date to June 30. EU leaders have said a short extension would have to be conditional on her Brexit plan getting parliamentary backing and have indicated they would only be willing to back a delay to May 22, the day before elections to the European Parliament. After two heavy rejections in parliament, there are doubts as to whether she will be able to get parliamentary approval. What would happen next is uncertain.
The Bank of England warned in November that the British economy could shrink by a massive 8 per cent within months, though Governor Mark Carney has indicated the recession will be less savage, partly because of heightened preparedness.
According to the minutes of the latest meeting of the bank’s nine-member Monetary Policy Committee, at which the main interest rate was kept at 0.75 per cent, rate-setters warned “Brexit uncertainties would continue to affect economic activity looking ahead, most notably business investment.”
Brexit uncertainty has dogged the British economy for nearly three years. In 2018, the economy grew by 1.4 per cent, its lowest rate since 2012, even during what was then a global upswing. Business investment was down 3.7 per cent in the fourth quarter from the year before.
“Business investment had now fallen in each of the past four quarters as uncertainties relating to Brexit had intensified,” the rate-setters said.
The survey showed uncertainty was likely to remain for months, even years, as Britain works out its long-term relationship with the EU. It said around 60 per cent of U.K. firms in February said Brexit was one of their top three uncertainties, compared with 40 per cent just after the June 2016 Brexit referendum.
Around 40 per cent of firms expect the uncertainty to be resolved only by the end of 2019 and 20 per cent anticipate it persisting into 2021 or beyond.