Anxious businesses make plans for ‘no-deal’ Brexit
Firms are stockpiling goods, devising workarounds for disruptions to supply chains
As Prime Minister Theresa May works to save her deal to exit from the European Union, businesses on both sides of the English Channel are bracing for the worst—a “no-deal” Brexit— and planning for it. Mrs. May on Monday postponed a vote in parliament this week to approve her deal with the EU, saying it was unlikely to pass. With just over three months to go before Britain’s March 29 deadline for a split, she faces a shrinking window to negotiate an orderly deal.
For months, companies have been preparing for Britain leaving the EU without an agreement governing future trade. That could mean worker shortages, lengthy delays at the border and new tariffs on everything from cars to wine.
Firms have been stockpiling goods, moving workers and plotting workarounds for disruption to supply lines and regulatory uncertainty.
Executives had broadly welcomed Mrs. May’s proposed deal because it allowed them to prepare for the U.K. to leave the EU. The vote’s postponement sent a shudder through business: Shares of many big companies tumbled, and the pound fell to its lowest level in more than a year.
“This is yet another blow for companies desperate for clarity,” said Carolyn Fairbairn, director-generation of the Confederation of British Industry, a trade body representing 190,000 businesses. “Unless a deal is agreed quickly, the country risks sliding towards a national crisis.”
If British lawmakers can’t agree on a form of Brexit, which also needs buy-in from the EU, the default option is for the country to exit from the bloc on March 29 with no deal at all.
Automakers, with tight supply chains and the introduction of tariffs on both finished cars and components, are among those most at risk of disruption. “Leaving without a deal would be catastrophic,” said Mike Hawes, chief executive of The Society of Motor Manufacturers and Traders, a trade body. “No deal must be avoided at all costs.”
Toyota Motor Co. has said it holds just four hours of parts at its U.K. car plant and relies on 50 trucks entering Britain each day to build its cars. A threeweek strike by French ferry staff in 2015 disrupted Toyota’s supply for two months, the company told lawmakers at a recent hearing.
The British car industry as a whole relies on 1,100 truck deliveries a day to keep production lines humming, according to the motor-manufacturers group. Its analysis suggests EU tariffs on cars alone could add at least an annual £2.7 billion (about $3.4 billion U.S.) to imports and £1.8 billion to exports.
Trade bodies for the pharmaceutical, aerospace and retail industries also Monday warned of the no-deal outcome.
Companies from plane maker Airbus SE to drug giant Pfizer Inc. have already spent millions of pounds on contingency planning and the stockpiling of components and finished goods to secure supplies.
Three quarters of Britain’s pharmaceutical imports come from the EU, and last week the British government warned that potential border disruptions could last six months.
Warehousing space for items such as drugs and food is al- ready running low in some areas such as cold storage, according to company executives and logistics firms.
Banks have also been preparing for a no-deal Brexit for months, applying for licenses to relocate operations to other European countries to ensure they can still serve clients regardless of how the U.K. leaves the EU.
After a slow start, European regulators say they are generally happy with the progress made by bigger banks and firms whose pockets are deep enough to incur the expenses associated with the preparations without much clarity. But, the Bank of England has been less bullish, highlighting unresolved issues including trillions worth of hedging contracts to insurance policies that must be transferred to remain valid.
To help business prepare, the British government has published more than 100 technical notes covering areas that might be affected by a no-deal Brexit. These range from the need to obtain new operating licenses to changes in the way goods are labeled.
Despite companies’ own efforts and guidance from government, some businesses could be left unprepared for a no-deal Brexit.
Stephen Martin, director general of the Institute of Directors, which represents senior business leaders and entrepreneurs, said Monday that just 14% of the association’s members say they are fully prepared to manage a no-deal Brexit.