Brexit Update Summary

There is a growing interest in the prospect of the UK facing a no-deal Brexit on 31 October 2019 and what this may mean for businesses looking to invest or more to the UK.

To help you understand the current political and economic impact on the UK of Brexit we have prepared a number of points for you to consider:

Economic

• The Bank of England has cut its forecasts for UK growth over the next two years in its latest report. The UK economy was expected to grow by 1.3% this year, down from a previous projection of 1.5% in May. It has also cut its outlook for growth in 2020 to 1.3%, from a previous projection of 1.6%. These forecasts are based on the assumption of a deal taking place.
• The Bank's governor Mark Carney said the UK would be smaller, weaker and poorer in the event of a no-deal Brexit.
• The value of the Pound has fallen consistently since Brexit was announced. At its lowest Sterling hit 93.26 pence against the Euro, $1.2015 versus the dollar. Prior to the vote, the pound was worth $1.4883.
• This has severely weakened the purchasing power of UK consumers and business.
• However, it has made the UK more investable as foreign companies get more from their money when buying British companies and goods.
• Unemployment in the UK is at its lowest levels in decades and wages are rising, but in real-terms most UK workers have seen a cut to their pay.
• Forecasts for the UK economic situation in the event of a no-deal vary drastically, with some predicting a recession, while others are nearer the current status quo. Few indicate that economic performance will return to pre-Brexit levels, unless a favourable deal is achieved.

Trade

• The European Union (EU) has about 40 free trade deals, covering more than 70 countries. In the event of a no-deal Brexit, the UK would suddenly lose tariff-free access to these markets and it would have to trade under World Trade Organization (WTO) rules.
• The US has indicated that it is willing to work with new Conservative Government headed by Boris Johnson and has already agreed in principle to place the UK at the ‘top of the list’ for a sector by sector deal in the event of a no-deal Brexit. This could take several years to achieve.
• Unfortunately, several lobbies in Washington have said they would block a deal if there is a hard border in Ireland, while UK politicians have raised concerns about the impact on the independence of the NHS and concerns about food safety guidelines and workers’ rights being diluted.
• The UK government is in the process of rolling over the EU's existing free trade deals with other countries.

However, it has already agreed continuity deals with:

• Central America (signed 18 July)
• Andean countries (15 May)
• Norway and Iceland (2 April)
• Caribbean countries (22 March)
• Pacific Islands (14 March)
• Liechtenstein (28 February)
• Israel (18 February)
• Palestinian Authority (18 February)
• Switzerland (11 February)
• The Faroe Islands (1 February)
• Eastern and Southern Africa (31 January)
• Chile (30 January)

The UK has also agreed a deal in principle with South Korea.

Politics

• Much of the complexities of Brexit are tied up in the complex political situation in the UK.
• Boris Johnson came to power after Theresa May stepped down as Prime Minister. He has formed a new Government with new ministers, the majority of whom are pro-Brexit in their outlook.
• This new Government has an extremely small advantage in the House of Commons of just one seat/vote. This is only made possible thanks to an alliance with the Northern Irish DUP.
• There are a number of Tory backbenchers who could rebel against the Government effectively blocking the actions of Mr Johnson and his ministers.
• Mr Johnson is committed to securing Brexit on the 31 October 2019, including via a no-deal Brexit. He has made this very clear and has suggested that he is willing to suspend (prorogue) Parliament in order to achieve this.
• The speaker of the House of Parliament, John Bercow, has said that he will do all in his power to prevent this.
• If it goes ahead thought, this could lead to a vote of no confidence in the Government which could lead to a general election.
• Mr Johnson and his adviser Dominic Cummings have said that the Government could ignore this vote of no confidence and proceed with Brexit. This could result in a constitutional crisis which may force the monarch to act to either remover Mr Johnson or support an alternative Government, most likely led by the Labour Leader, Jeremy Corbyn (this entire situation is highly unlikely).

The situation surrounding Brexit is very fluid and much is likely to change in the coming days, weeks and months.

The team at Reanda UK are standing by to provide up to the minute advice on this complex situation should you or your clients require it.