“In addition to uncertainty about what’s going to happen, now there’s uncertainty about when it will happen.”
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
With each passing day, the fog of uncertainty surrounding Brexit thickens, with myriad knock-on effects for businesses on both sides of the English Channel. “Companies no longer have any idea what they should be preparing for,” Martin Wansleben, executive director of the German Chambers of Industry and Commerce (DIHK), told the Funke Mediengruppe newspaper chain. “In addition to uncertainty about what is going to happen, now there’s uncertainty about when it will happen.”
The UK parliament’s advisory non-binding votes of the past week to seek to delay the country’s departure from the European Union and reject any form of no-deal Brexit, rather than providing much-needed clarity, have produced yet more confusion and uncertainty. And that’s the last thing businesses need.
Seventy percent of German companies with business in Britain expect further erosion of business confidence in 2019, while just one in five of those firms said its UK business was going well, says Wansleben. Eddie Rouse, a logistics manager at German machine-tool maker Heller Maschinenfabrik, said the following on Brexit planning:
“If someone would just make a decision, good or bad I don’t really care, then I know what I’m dealing with.”
It’s a sentiment that is widely shared, particularly among logistics companies that have spent the last months exhaustively preparing for a no-deal Brexit on March 29. Rem Korteweg, a senior research fellow at the Netherlands Institute of International Relations, reported on Friday that roughly half of the logistics managers who attended a Brexit event he chaired said they would prefer the certainty of No Deal to the uncertainty of a Brexit extension.
If the EU’s 27 Member States agree to grant the UK a stay of execution at the next European Council summit, on March 21, the Brexit deadline could be extended by as little as two months or by as long as two years. The longer the extension, the greater the likelihood of a referendum being held that might — or just as equally might not — cancel out Brexit altogether, albeit at the risk of further polarizing the British public, destroying what little trust remains in the political establishment, and plunging the country into a political and constitutional crisis.
It’s possible, though unlikely, that the mere prospect of such an unsavoury outcome will force the more extreme Brexiteers in the Conservative Party to finally throw their support behind Theresa May’s widely loathed Withdrawal Agreement at the third time of asking. There’s also a chance that the extension is not granted, May’s Withdrawal Agreement is not passed, if indeed a third vote is even allowed, and the UK crashes out of the EU by default on March 29, in which case businesses will need to activate those contingency plans after all.
Is it any surprise that many of them are at the end of their tether?
They include three major car manufacturers — BMW, Jaguar Land Rover and Honda — that all plan to close their factories in April from between a week to up to a month to mitigate potential disruption from a no-deal Brexit. A delay would wreck such contingency plans as shutdowns like these involve months of planning so employee holidays can be scheduled and suppliers can adjust volumes, making them hard to move.
Mike Hawes, the Chief Executive of the industry group, the Society of Motor Manufacturers and Traders (SMMT), said that any extension of Article 50 “must be purposeful and long enough to give business stability and Parliament time to reach consensus to end the deadlock.”
But consensus is the one thing that has been impossible to achieve on Brexit. As the last month of political theater and farce have shown, parliament is riven down the middle on the issue, as is the country as a whole. According to the latest Opinium poll for the Observer, exactly the same percentage of voters (43%) believe there should be a second referendum on Brexit as think the UK should leave the EU without a deal.
Extending the deadline by an extra year or two, in Brussels’ classic can-kicking style, may not be enough to break the impasse. And the cost, in terms of continued economic pain and uncertainty, could be huge. “Further delays will mean households and businesses remain hostage to the crippling economic uncertainty that has already plagued them since the referendum,” says Catherine McGuinness, policy chair of The City of London Corporation.
Prolonged heightened uncertainty is like sand in an economy’s gearbox. It’s already taking its toll on the UK economy. Investment fell quarter on quarter all through last year for the first time since the financial crisis of 2008-09, according to the Office for National Statistics. Fresh inward investment in the UK’s automotive sector plunged 47% to just £589 million in 2018.
Investment in many other areas is also suffering. Last week IHS Markit reported that UK employers’ staff-hiring intentions had plunged to a six-year low in February, while ManpowerGroup’s latest survey of UK employers found that growing numbers of companies are preparing to cut jobs across the country following a sustained period of rising job creation that drove unemployment to its lowest level since the 1970s.
Many of the worst doom-and-gloom economic predictions that were made before the referendum, including a deep recession or a mass exodus of jobs from the City have so far failed to materialize. Even at this late stage, less than two weeks before the Brexit deadline, the unemployment rate in the UK is two and a half points below the EU average. But the cracks are beginning to show. And prolonging the uncertainty for another year or two is only going to help them grow while making the UK an even more ungovernable mess. By Don Quijones.
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