LONDON — In a land of dark clouds, scaremongering and simmering anger about Brexit on both sides of the political divide, British businesses are soldiering on, making contingency plans and — like those philosophical “Monty Python” characters — trying to look on the bright side in the face of adversity.
Despite forecasts by the Bank of England, the Organization for Economic Cooperation and Development, PwC — and the British government’s own economists — of misery, weeping and gnashing of teeth if the U.K. quits the European Union without a Brexit deal, there are some who are looking at 2019 with a sense of relief — and a flicker of optimism about the near-term.
“We’re in the worst place right now. No one feels very confident or stable,” said Diane Wehrle, insights director at Springboard, which looks at footfall and bricks-and-mortar retail activity across the U.K. She was speaking in mid-December and referring to the impact that the Brexit uncertainty is having on businesses, which are in a holding pattern with regard to future orders, manufacturing, storage and staffing.
She added that certainty, one way or another, will bring stability to businesses and consumer sentiment alike, although that certainty is unlikely to come soon. Parliament’s vote on British Prime Minister Theresa May’s Brexit deal is set for the week starting Jan. 14, with the debate kicking off in parliament on Jan. 9.
This is the vote that May postponed in early December — the one she knew she would lose — for a deal that neither Remainers nor Brexiteers, Conservatives nor Labour likes. With the nature of the post-Brexit border between Northern Ireland and the Republic of Ireland still a touchy subject, and the EU’s refusal to negotiate further, it’s unclear whether May’s latest, tweaked proposal will pass.
If it doesn’t, Parliament will have to decide whether to push for a last-minute alternative deal, or allow the U.K. to crash out of the EU in March, which would have a drastic short-term impact on imports, exports, Britons’ ability to travel abroad and a host of other regulations.
There could also be a second referendum, a no-confidence vote in the government – and a new election that could usher in Labour as Britain’s new leaders. There is also talk of a “managed no-deal,” which would temporarily soften the blow of a hard exit, but it’s unclear how long a period of emergency measures agreed by the U.K. and EU could last.
The big banks and consultancies have taken a variety of scenarios into account, and the overall result is grim. Capital Economics offered the best outlook, with a growth forecast of 2.2 percent, and inflation of 2 percent if a version of May’s deal passes in January. The worst outlook is from Fathom: The consultancy is looking at 0.5 percent growth and 2.1 percent inflation. It cited a drop in household spending and companies deciding to freeze investment.
George Wallace, chief executive officer of the pan-European consultancy MHE Retail, said his best advice to clients is to get a crystal ball.
“Nobody knows what’s going to happen, and any options could be on the table. There is a lot of exasperation that [the Brexit deal] has been taking so long, a lot of anxiety about customs, warehousing and deliveries. What people want is certainty, and not another two years of standing around waiting,” he said.
While Bank of England governor Mark Carney has said less than half of the businesses in the country have initiated contingency plans for a no-deal Brexit, many have been taking action.
High-street clothing brand Joules has taken early deliveries of its spring and summer collections and set up an EU warehouse while the retail chain Next is already prepared for a “no-deal” Brexit. In September, the company’s ceo Simon Wolfson hiked the retailer’s full-year profit forecast and downplayed the impact of the U.K. crashing out of the EU.
Wolfson, a Conservative member of the upper house of the British Parliament, had long been in favor of quitting the EU, and said months ago that if Britain fails to strike a viable deal with the rest of Europe it would not be an enormous tragedy. He said the biggest single risk of a no-deal Brexit is that the ports stop working, “and there’s a lot the government can do to reduce the burden of work at ports.”
A report by Next said a no-deal Brexit would mean additional duties on goods, but that business could proceed as usual as long as ports and customs procedures are prepared for the change, and as long as tariff rates are adjusted so that customers don’t have to absorb extra duties.
“We believe we can manage the business to ensure no material cost increases or serious operational impediment,” Next said in September.
Johnnie Boden, founder and owner of the eponymous clothing retailer, has already calculated the hit that his company’s profits would take from a no-deal Brexit, and has been working it into his forecasts.
“A no-deal Brexit would be horrendous for us: There would be a hit to profits because of the duties. All the Brexiteers say how easy trade would be under WTO [World Trade Organization] regulations, but the WTO duty on clothing is 12 percent, and that is a massive amount to pay,” Boden said.
He also pointed to potentially “significant delays” in getting goods over to Germany — one of Boden’s biggest export markets — and said if service to Germany is delayed even by an extra two or three days, “they just won’t buy from us. They’ll buy from German companies. Free trade has also meant that we source things from hundreds of different places, and for it to work, there has to be an easy flow of goods around the world.”
Boden believes that consumers would suffer on many different levels with a no-deal Brexit. In an interview he said the thought of vans blocked on highways or at the U.K. borders for customs checks made him sad.
“Inside every van is stock that is people’s hopes and dreams. It is a part for a car you just ordered, or it is a dress, a nice tomato from Spain that you want for your salad, there is human life in those lorries,” Boden said.
Some businesses have already been able to take full advantage of all the uncertainty, and the weaker pound. The British currency is currently trading at about $1.26, compared with $1.45 before the Brexit referendum in 2016.
According to the New West End Co., which represents more than 600 businesses in Mayfair and around Oxford and Regent Streets, travel bookings to London were up 2.3 percent between November 2018 and January 2019, with Chinese, Saudi and Qatari visitors among the top international shoppers in the West End. The company added that Americans are another key market for the West End, and over the last 90 days, their spend rose 29 percent.
Going forward, businesses will continue to deal with the pleasures — and the pain — of the weaker pound, taking a hit on sourcing outside the U.K., and reaping the benefits of tourism and an exchange rate favorable to foreigners.