The threat of a ‘No Deal Brexit’ has sapped business confidence to its lowest level in a decade, with Britain reportedly on course for the biggest decline in business investment since the financial crisis.
According to a Deloitte survey of Chief Financial Officers across the UK, CFOs are more pessimistic about Brexit risk than at any time since the 2008 financial crisis.
There is a widespread fear that they will have to employ fewer staff, with more than three quarters of those surveyed believing Brexit will lead to a deterioration of the economic environment.
Business lobby group, the Confederation of British Industry has also warned that Brexit uncertainty is preventing firms from investing, crippling the economy and risking the UK falling behind its G7 competitors.
The Office for Budget Responsibility (OBR) has also predicted that a No Deal Brexit will plunge Britain into recession and shrink the economy by two per cent, with a negative effect on wages, employment and house prices.
Bev Budsworth, MD of The Business Debt Advisor, said: “The first quarter of 2019 saw a marked increase in the numbers of companies entering administration or proposing CVAs. These processes tend to be used for larger sized insolvencies and undoubtedly economic uncertainty will have played a part in these companies’ demise.
“There is no doubt that to survive post-Brexit, businesses need to be ‘on it’ and have a plan. For ideas please feel free to use our Business Survival Guide.”
The uncertainty over Brexit and whether or not the UK will leave with a deal has already contributed to businesses entering insolvency, such as British Steel.
And this week, Britain’s former Brexit chief said a no-deal scenario was “fraught with risk” and a “step into the unknown”.
Speaking to BBC’s Panorama, Philip Rycroft, who was in charge of Brexit planning until March, said: “I think everybody should be worried about what happens in a no-deal situation. We would be taking a step into the unknown.
“It’s not in the UK’s interest to have no deal, it’s not in the EU’s interest to have a no deal.”
And with rising expectations of a no-deal Brexit led by Conservative Party leadership rivals Boris Johnson or Jeremy Hunt, business leaders are increasingly downbeat about the large level of disruption expected in the short term, as well as the post-Brexit British economy in the long run.
What is a ‘no deal’ Brexit?
A ‘no deal’ Brexit is just that – it means the UK and the EU have been unable to reach a withdrawal agreement and there is no deal in place when the UK leaves.
In a ‘no deal’ scenario, it means there will be no 21 month transition period to ease the UK into the process of not being in the EU.
That means the effects of Brexit will be felt immediately and businesses and public bodies would have to respond immediately to the changes.
One of the key issues with a no deal scenario is the uncertainty it would lead to for life and work in Britain.
How will a no-deal Brexit affect UK businesses?
1. Business disruption
The physical disruption to businesses in the UK would be felt quickly after Brexit.
As border checks are introduced, delays at ports and airports will grow and backlogs will build up, an issue which would affect construction, manufacturing and services companies.
Businesses can only stockpile products for so long and supermarkets have warned that an October ‘no deal’ could be disastrous as the last three months of the year are when most fresh food is imported from southern Europe.
Manufacturers could move their operations to the EU to avoid delays in components coming across the border.
2. Effect on trade
In the event of Brexit, the UK would instead revert to World Trade Organisation rules on trade. Although trade would no longer be bound by EU rules, it also means any trade would be subject to EU tariffs.
Unless a new trade deal is struck, the UK face the threat of tariffs on 90 per cent of its EU goods exports.
That means the price of imported goods for UK businesses and customers will likely increase as a result. Similarly, some British-made products may be rejected by the EU as new authorisation and certification might be required.
3. Lost competitiveness
An increase in EU trade tariffs could also have a wide ranging and detrimental effect on the UK’s competitiveness.
The EU will likely apply double testing on the majority of UK products and as businesses become bound up in more red tape, their competitors in Europe and elsewhere could take advantage.
As a consequence, UK services providers could be forced to shift operations to Europe to maintain market access.
4. Striking trade deals with new countries
While many pro-Brexit commentators acknowledge that increased restrictions on trade with the EU could lead to some negative effects on UK productivity, there is the potential that this could open the UK up to new trade deals with nations outside of the EU.
Striking free trade deals with a range of countries outside the EU including the US and Asian economies could bring benefits to the UK.
However, the increased protectionist stance taken by US President Donald Trump, increased steel and aluminium tariffs, and a trade war with China comes at an awkward time for the UK and negotiating deals outside of the EU.
According to some estimates, the UK fishing industry could potentially double in size after Brexit.
The theory is that leaving the European Union would allow the UK to take full control of a natural resource which EU boats also currently have access to.
However, there is still no confirmation that any Brexit deal would allow the UK to leave the Common Fisheries Policy (CFP) or when such an agreement could be finalised.
Has your business been affected by Brexit?
If you are worried about how to safeguard your business from the impact of Brexit, you can read more information on how to manage risk and prepare your business for Brexit in our blog.
If your business has been affected by Brexit uncertainty or you have concerns about the effect a no-deal could have on your company, then please fill out our Contact Form and we will be in touch.
Alternatively, call our FREE ADVICE LINE on 0800 781 0990 or chat to us online.
Our team has extensive experience in dealing with businesses across all sectors and can arrange an initial consultation at no cost, usually on the same day.