Brexit: Our prediction and its implications

Brexit: Our prediction and its implications

October 26, 2018

As forecast at our industry breakfast event 3 days after the referendum, UK politics has reached an ungovernable stalemate

1.5 years since the triggering of Article 50, it is still unclear whether the UK can leave the EU in an orderly fashion. Time is running out to sign a withdrawal agreement, let alone determining the UK's future relationship with the EU. As predicted, divisions in UK politics leave the UK government struggling to deliver a Brexit that pleases a majority.

Meanwhile, Brexit has caused an unprecedented amount of uncertainty in the UK economy. Investors, in various industries, have delayed or cancelled their investment decisions to "wait and see" what the results of the Brexit negotiations will be. It remains to be seen whether the UK government will be able to agree on a withdrawal deal with the EU, and whether both the UK and the EU can get this withdrawal agreement approved within their constituencies.

This is what we think is going to happen next:

Another five years "in limbo", as we forecast after our pioneering Brexit work for the UK automotive industry back in 2016

We predict the UK government and the EU will find a way to reach a withdrawal agreement, avoiding a "no deal" crisis, and keeping the UK "in limbo" in the customs union until a trade agreement can be signed. A UK-EU trade deal will take >5 years to negotiate – the EU-Canada Free Trade Agreement took 7 years to negotiate, and the EU will be in no rush to sign a deal. The UK's parallel negotiations on trade deals with the rest of the world cannot come into effect until there is an agreement with the EU.

What does this mean for you:

This period of "kicking the can down the road" will prolong the uncertainty around the future of the UK and access to the EU / world market. Meanwhile, investors will continue to doubt the viability of long term investment into the UK. Continued Brexit uncertainty will cause continued paralysis, preventing industry from answering its key questions:

Tariffs: What are the potential outcomes of a negotiated trade deal in tariffs? How do we secure a competitive cost base? How can we competitively price our products in different markets?

Non-tariff barriers: What are the potential supply chain disruptions we will need to face? How do we make sure our supply chain is versatile?

Talent: How can we build a talent strategy that ensures we do not face talent shortages?

Market conditions: How can we hedge ourselves against the potential slowdown in the UK economy? Where should we invest?

FX rate: What is the impact of FX volatility on our P&L and our global customers? How can we position ourselves favourably in the face of a potential depreciation of sterling?

What you should do about it:

Invest in future proofing your business - start the discussion now on how your company will survive >5 more years of uncertainty around UK investment. Do not play the "wait and see" game until March 29, 2019, because likely, the future will remain uncertain.

RB can help with:

  • Strategic business model review: Complete review of the implications of Brexit on your business model, including each part of your footprint, value chain and internal resources
  • Scenario planning: Pressure testing of existing strategy and financial planning for alternative market and business conditions using well developed scenarios
  • Supply chain planning: Optimisation and digitalisation of supply chain planning to adapt to and capitalise on changes borne out by Brexit with the goal of remaining agile to future shifts

As well as our work for the Automotive industry, reach out to us for our existing perspective on "second wave" sectors, such as Components, Electronics, Pharma & Health, FMCG and others.

Further reading