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What could the Brexit summit mean for my business?

business-articlesWhat could the Brexit summit mean for my business?
Temperatures might have soared over the summer, but the pound plummeted.

Over the last few months Sterling has been buffeted by concerns of a no-deal Brexit and driven to one-year lows against both the US dollar and euro.

Of course the uncertainty surrounding Brexit has also done little to inspire UK business confidence, as firms juggle their day-to-day operations with preparations for an uncertain future outside of the EU.

In fact, in the two years since the Brexit vote we’ve seen business confidence slump as firms deal with rising input costs, falling consumer spending and volatility in GBP exchange rates.

Now, despite months of tit for tat reports and damning headlines, hopes that the UK and EU may be on track to finally strike a Brexit deal remain. While some doubt an accord is possible at this stage, an emergency summit of EU leaders will be held in November in an attempt to finalise an agreement.

But businesses are understandably still wary, especially given that there are still a few key issues that need resolving.
 

What are the key points of contention?


In the next few weeks negotiators from the UK and EU will be busy hammering out the biggest points of contention between the two sides.

The main stumbling block for the creation of a Brexit deal is the issue of the Irish border, with the UK and EU frequently clashing on how this will be handled post-Brexit, particularly over the proposals for a backstop agreement.

Another potential flashpoint in negotiations is how the UK and EU may manage future trade disputes as the UK’s commitment to pulling out of the European Court of Justice will likely lead to considerable legal hurdles.

On top of this there are a litany of other smaller issues (like security and Gibraltar) that also need to be negotiated before a deal can be finalised.
 

In the event a deal is reached


Should Theresa May emerge from the summit with a signed agreement detailing the UK’s exit from the EU and outlining a future relationship, we could see a dramatic surge in Sterling exchange rates.  

This could be a boon for any UK businesses that import from overseas as it will immediately make international goods cheaper in GBP terms.

The net impact of a Brexit deal on UK businesses is also likely to be positive, with KPMG’s quarterly Economic Outlook Report suggesting that the UK economy is set for modest growth if a deal can be reached.

A Brexit deal will also give firms greater clarity on how the process will play out, making it far easier to prepare for life outside of the EU, set budgets and calculate cost projections.

Should the UK and EU reach an agreement over Brexit, British businesses will also need to consider the possibility of interest rates accelerating in 2019.

The Bank of England (BoE) has frequently voiced concern over the uncertainties of Brexit and it is thought that this has played a considerable role in the bank remaining cautious on the subject of higher borrowing costs.

However a firm Brexit agreement could give the BoE the confidence to step up the pace of tightening monetary policy in the coming year.
 

What about a no deal?


If officials fail to reach a deal at the November summit, heightened GBP volatility is likely, with the GBP/EUR exchange rate potentially even edging towards parity amidst a marked rise in uncertainty.

While a drop in GBP exchange rates may be a boost to exporters as it makes UK goods more attractive to foreign buyers, the threat of the UK collapsing out of the EU without a deal is likely to lead to a sharp fall in business confidence and could leave some firms struggling to secure investment as anxious investors begin to pull out of the UK.

Furthermore, domestic consumers may react to the uncertainty with reduced spending, placing further strain on businesses. 

If you’re concerned about the impact possible fluctuations in the pound could have on your business in the months ahead, there are steps you can take in order to minimise your exposure.

To discuss your transfer options, give our team a call on +44 20 7847 9400.  
 
 

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