Brexit delay likely as companies urged to plan for no-deal

Companies are being urged to plan for a no-deal Brexit, with a delay in the final decision now likely, but face a lack of advice as political uncertainty mounts. UK Members of Parliament were due to debate and vote on amendments to the Brexit deal today (February 14),however the Prime Minister has asked for more time to negotiate changes to the Northern Ireland back-stop with the European Commission. MPs are now expected to vote on the next steps on 26 February, whether or not a deal with Europe has been agreed. A delay to Brexit looks likely, according to Oksana Antonenko, director at specialist risk consultancy Control Risks. Given that the UK and EU both want to avoid a disorderly Brexit, an extension to Article 50 is now the most likely scenario, she said. “It is difficult to see how we can get to an orderly agreed Brexit, but there is an understanding in the UK and in the most affected EU member states that a no-deal Brexit would be costly. We are now in a chaotic phase that will be full of ups and downs, twists and turns, and uncertainty,” said Ms Antonenko. “But in our view, at the end of the day there will be a way found to manage the process, which is likely to involve the extension of Article 50. This could be a few months of short negotiation to settle issues with the current deal, or longer if there is substantial political change in the UK,” she said. However, the threat of a no-deal is ever present and companies could face ongoing uncertainty for months beyond the current 29 March Brexit deadline, explained Ms Antonenko. Even if a withdrawal agreement is signed, businesses will face greater strategic uncertainty over the future relationship with Europe or the UK, she said. According to Ms Antonenko, companies and their risk managers should consider a number of key areas from a no-deal scenario, including the status of workers, supply chains, trade flows and data. Most companies have already made contingency plans, although small to medium-sized firms are most exposed and may have little experience of customs and export requirements, she said. This week, the British Chambers of Commerce said British businesses had been “hung out to dry” in Brexit negotiations. It published a list of 20 questions that remain unanswered should the UK leave the EU on 29 March without a deal. The group, which represents some 75,000 UK businesses, warned that the absence of clarity has already stifled investment and growth, and is resulting in unnecessary costs, an inability to plan and, increasingly, loss of business. German thinktank the IFO Institute also warned that uncertainty around Brexit is costing German firms dearly. German exports to the UK have fallen 10% since the referendum in 2016, according to the IFO. It is urging the EU to make concessions in a bid to avoid a no-deal. Ratings agency Standard & Poor’s warned last week that the risk of a no-deal Brexit remains high, with negative implications for corporate bond ratings. Although it believes the political incentive for the UK and the EU to negotiate an orderly outcome remains very strong, it said a no-deal Brexit could result in corporate ratings downgrades from a weaker UK economy and material disruption to businesses. S&P identified about 20 companies that could face a negative rating action in a no-deal scenario, with automotive, leisure, retail, real estate, aerospace and transport being the most-exposed sectors. Most recently, 30 business leaders in the UK food industry wrote to environment secretary Michael Gove warning of a potential crisis from a disorderly Brexit, which they say now looks "ever more the likeliest outcome". The automotive industry body SMMT also warned in December that a no-deal Brexit would be “catastrophic”, adding £4.5bn to UK car imports and exports each year. “Given the ongoing political uncertainty, there is a renewed urgency to roll out no-deal contingency plans, which are accelerating among businesses and governments. The net effect of these measures will serve to reduce – but not eliminate – the more extreme [cliff-edge] effects that could otherwise threaten the short-term viability of businesses heavily reliant on UK-EU cross-border activity,” S&P wrote in a report last week. But as the crunch time comes, advice for companies has fallen away as a result of the political uncertainty, according to Julia Graham, deputy chief executive and technical director at Airmic. “Immediately after the UK voted to leave the European Union, organisations faced a wall of advice about what to consider and actions to take. As time has passed and agreement by governments on a withdrawal deal has appeared increasingly less obvious, advice has diminished and slowed to a trickle,” she said. “Organisations are being urged to plan for a no-deal scenario and to call upon the practices they use when addressing complex supply chain crisis management – whether you are a board member seeking to discharge your governance responsibilities, or a sole trader aiming to keep your small business afloat,” she added. According to Carl Leeman, chief risk officer at Katoen Natie and board member at Ifrima and Belrim, companies have acted. For example, Katoen Natie has reviewed its dependency on UK-based tier one and tier two suppliers, and questioned the cost of supplies after the UK leaves the EU. “Where necessary we have looked for other suppliers outside of the UK,” he said. “For our forwarding and custom clearance activities we are also ready to act, but at this point in time we cannot do anything as we now have to wait for the final outcome of the ongoing negotiations between the UK and Brussels. Nobody knows what is happening but in [the] case of a hard Brexit, or even a soft Brexit, there will be many issues at the borders,” said Mr Leeman. “Other than for consultants and law firms, Brexit has not been good at all for the international business,” he added. According to Airmic, the supply chain remains top of mind in most organisations and sophisticated plans are in place. However, the association said risk managers should consider whether sufficient attention is being paid to no-deal scenarios and whether contingency plans are fully rehearsed and ready to go. S&P said a no-deal Brexit would most likely result in the UK experiencing a moderate recession, with a reduction in long-term economic growth potential. The UK economy grew just 1.4% in 2018, down from 1.8% in 2017 and the slowest rate in six years, according to the Office for National Statistics. The Bank of England has reduced its growth forecast for 2019 to 1.2%. This is its worst forecast since 2009. A no-deal Brexit could also result in negative rating actions for UK banks due to its impact on the domestic economy, although international financial institutions in the UK are well advanced in implementing their Brexit contingency plans, according to S&P. A recently updated survey by Reuters found that 1,500 jobs in the City of London had moved overseas, with a further 500 expected to go before March. In September, UK financial institutions said they expected to move almost 6,000 roles to the EU in the event of a hard Brexit. A Brexit deal may yet be agreed in coming weeks, or the process could be extended via an extension to Article 50. Failing that, the UK would leave the EU on 29 March without a deal. The EU and UK are both preparing for such a scenario. The European Commission implemented a Contingency Action Plan in December 2018. Ireland, Germany and the Netherlands have hired hundreds of additional customs officers to keep trade flowing through major ports. The UK has published technical notices on temporary measures to minimise disruption. For example, the Home Office said EU citizens would be able to visit and work in the UK for a transition period, even in a no-deal scenario. The government also published advice about no-deal simplified VAT procedures for companies that trade with the EU. Airmic’s Ms Graham also reminded companies that where there is risk there is often opportunity. “Business leaders should, however, remember the saying ‘never let a good crisis go to waste’. Out of crisis comes renewal and while you don’t want to be remembered as the risk professional that didn’t plan for the worst case, you should also consider the upside of scenarios developed as part of more conventional crisis management planning. Crisis typically can fuel progress,” she said. According to Ms Graham, there remain concerns about continuity of insurance following Brexit. The European Commission’s contingency plans, for example, do not address continuity of insurance contracts for EU27 policyholders with insurance contracts written in the UK. “However, there is no desire or benefit to be had by any insurance market stakeholder, wherever based, for insurance not to perform as designed. This is a global sector imperative,” she said.

Brexit delay likely as companies urged to plan for no-deal

Want to read this article?

Read Next

Marsh tracks slowdown in global Q1 rate hikes

Markel names head of terrorism in London

Insurers defend Nord Stream’s €400m lawsuit as act of war

Allstate posts nat cat loss of $343m for March

UAE flash flood losses manageable as insurers adapt to changing weather

Marsh tracks slowdown in global Q1 rate hikes

Markel names head of terrorism in London

Insurers defend Nord Stream’s €400m lawsuit as act of war

Allstate posts nat cat loss of $343m for March

UAE flash flood losses manageable as insurers adapt to changing weather

Want to read this article?

Read Next

Marsh tracks slowdown in global Q1 rate hikes

Markel names head of terrorism in London

Insurers defend Nord Stream’s €400m lawsuit as act of war

Allstate posts nat cat loss of $343m for March

UAE flash flood losses manageable as insurers adapt to changing weather

Related Articles