With the October 31 Brexit deadline fast approaching, there seems to be more questions than answers of what could happen next in Britain.
Will the UK leave the EU? If yes – on what terms? What does the UK’s long-term relationship with the EU look like? What impact will it have on market access? What about migrant labour and product regulation? And how it will affect businesses in the country?With little time left to the the official six-month extension to the Article 50 process expires, Brexit has already been hurting the UK – well before it has even happened.
The prolonged uncertainty, also referred to as the “Brexit fog“, seems to be affecting everyone in the country: banks, companies, employers and employees already face various challenges and problems.According to the Bank of England, the economy is now 2% smaller than it would have been if the UK had chosen to remain in the EU. The economic output lost since the referendum is worth about $1 billion per week, or $6 million per hour.
It seems that for many big companies, Brexit has already happened. Nissan and Siemens have delayed their projects and investments, and giants like Sony, Panasonic and Philips have already moved their assets, jobs and headquarters from the UK to the European continent.Even the British firm Dyson, founded by outspoken Brexit backer J. Dyson, announced the decision to move its headquarters from the UK to Singapore. Although the company said its decision was not linked to Brexit, the announcement was widely criticised.
As a result, UK manufacturing output witnessed its sharpest monthly slump since 2002: in April it recorded a drop of 4.1%. Manufacturing employment also fell at one of the fastest rates in six and a half years in August, with job cuts driven by cost-saving plans, slower economic growth and the continued impact of Brexit uncertainty.T. Pugh, an economist at Capital Economics, commented on the situation, saying that, “We doubt that the manufacturing sector is going to have any sort of revival until 2021, when global growth starts to pick back up
According to a study by Aston University, fewer manufacturing companies are achieving high growth today and the number of start–ups in the sector has also dropped.
M. Rutte, the Dutch prime minister, said that, “Every businessman I speak to from the UK is saying they will cut investments, cut their businesses in the UK. It will have an insurmountable impact on the UK,“ adding that Britain is now a “more diminished country compared to what it was two or three years ago.”
Interestingly, official figures from the Dutch investment agency show that the Netherlands has been a popular choice for business relocation, as 42 companies moved to the country last year, citing Brexit as the reason. In numbers, it means 1,923 jobs and $320 million in investment.
And that’s not all. The study, by Capital Markets‘ think tank New Financial, has identified that more than 275 financial services companies have moved or are moving some of their business, staff, assets or legal entities from the UK to the EU in preparation for Brexit.
To be more specific, around $999 billion has been moved by banks and investment banks, $81 billion in funds have been relocated by asset managers and $43 billion in assets have been shifted by insurance companies. As a result, 5,000 jobs are likely to be created in the EU in the short term, with more to come in the future.
And what about the small businesses?
The SMEs represent a core part of the UK economy, accounting for 99% of all UK firms and 60% of total private sector employment.
A. Soady, a federation spokesman, noted that right now, “lots of small businesses are in wait-and-see mode, and it’s not sustainable for that to go on indefinitely.“
In addition to this, the UK has to deal with a worsening skills shortage in the country. As much as 44% of all employers were struggling to find the staff they needed last year, and 34% had problems in retaining specific skill sets.
For example, nurses, doctors and other health care professionals from the EU are leaving the UK. As of today, almost 10,000 of them have quit, and the number of nurses registering to practice in Britain dropped by almost 90% in 2018.
Another sector that has been hit particularly hard is construction. Worker shortages hit a record low in 2018, according to figures from the Federation of Master Builders (FMB).
In its quarterly report on the state of the industry, the FMB revealed that companies are particularly struggling to recruit bricklayers and carpenters, while the demand for skilled plumbers, electricians and plasterers is also outstripping supply.
And there’s more. Uncertainty over Brexit slowed the UK’s economic growth to 1.4% last year – the slowest pace since 2012. The British pound is 14% lower than before the referendum. Gross domestic product fell 0.2% in the three months to June.
As the sterling keeps fluctuating, some retailers have warned that prices may increase. As a result, retail spending has sharply slowed, and retail sales fell by 0.5%, recording the biggest decline in spending in 2019.
Chris Williamson, the chief business economist at IHS Markit, noted that, “the purchasing managers index (PMI) surveys collectively indicated that the UK economy remained close to stagnation midway through the second quarter of 2019 as a result, registering one of the weakest performances since 2012.”
To be more specific, the index fell to 47.4 in August, down from 48.0 a month earlier. And anything above 50 separates growth from contraction.
Some numbers, on the other hand, have shown a more positive perspective.
In July 2019, UK inflation fell for the first time in four months, dropping back down to the target set by the government for consumer prices inflation of 2%. What‘s more, the UK’s trade deficit – the shortfall between imports and exports – narrowed to $3.4 billion in April from $7.6 billion in March. However, economists say that these figures might not necessarily mean that import and export volumes are returning to normal. It could indicate that firms in both the UK and in Europe now have unusually high levels of inventory, meaning they do not need to trade as much as they would normally do.
Uncertainty over Brexit has resulted in companies being prevented from investing, instead diverting resources into no-deal planning, meaning that funds that might have otherwise been spent on improving economic productivity or developing new products in the UK, were instead used to prepare for a worst-case scenario. Interestingly, the Brexit fog has had a good effect on one thing: in 2018, $118.6 million worth of contracts were awarded to consultancy firms to advise the public sector on Brexit.
Other than that, Britain has to prepare for October 31 and the potentially large economic shock that will follow, just in case.