U.K. Business Says Brexit Already Having a Negative Effect

Updated on
  • 58% of FTSE 500 bosses say Brexit a negative: Ipsos Mori
  • BCC survey shows weaker pound is pushing up firms’ costs

Brexit Uncertainty Adds to Global Supply Chain Concerns

Brexit has already damaged businesses even before Prime Minister Theresa May triggers the start of Britain’s withdrawal from the European Union, according to a survey of the country’s largest companies.

More than half -- 58 percent -- of the top executives at Britain’s biggest firms that responded to the Ipsos MORI “Captains of Industry” poll said the vote to quit the bloc has had a negative impact on their businesses. Two-thirds of the chief executives, chairmen and directors interviewed for the survey said they believed the business situation would worsen in the next 12 months.

“Business in this country is already feeling the pain of the economic upheaval of leaving the EU,” said Ben Page, CEO of Ipsos MORI. “According to respondents there is no sign that this is likely to ease this year.”

The research, conducted between September and December 2016, involved interviews with 114 chief executives, chairmen, managing directors and others from the FTSE 500 companies. It revealed the extent of business leaders’ underlying concerns over Brexit, despite positive economic data since the referendum vote last June.

The results could embolden lawmakers as they scrutinize the prime minister’s plan for Brexit negotiations in Parliament this week. May is refusing to compromise in the face of a fresh challenge to her divorce plans, even as a number of rebel Members of Parliament in her own Conservative Party are said to be planning to defy her authority and back amendments to the draft law.

More than two thirds of respondents to the Ipsos Mori said they have responded to the referendum result, with actions including moving business outside the U.K. and looking at currency moves. The sharp drop in the exchange rate, while helping to boost the FTSE-100 share index, is squeezing companies’ margins by pushing up import costs.

The British Chambers of Commerce said Monday that a majority of firms expect their costs to increase over the coming year and plan to increase prices in response. Sterling has fallen 16 percent since the Brexit referendum in June, and nearly as many exporters said the low pound was damaging them as those who said it was helpful.

The government’s skill in negotiating the final agreement with the EU will be key to mitigating the impact of leaving the bloc, according to the Ipsos Mori survey. Half of those interviewed were not confident in May’s ability to get the best deal possible.

Movement of workers was a key concern of those who took part in the study. When asked to state their priorities for the Brexit negotiations, 54 percent cited access to skilled labor. Almost half -- 47 percent -- called for securing free trade and access to the EU single market, with so-called passporting rights for financial services named by 16 percent. 

Consulting firm Mercer on Monday warned that gaps in the labor market will worsen as Brexit reduces the number of foreign workers coming to the U.K. 

Separately, consultancy Bain & Co. also warned on Monday that disruptions to supply chains could cut the profits of key British industries by as much as 30 percent if Brexit ends up resulting in World Trade Organization tariffs, a falling pound and costlier labor. Retailers, car manufacturers and technology companies are the most at risk although industries such as aerospace or pharmaceuticals could benefit due to the pound’s depreciation and tax cuts.

Migration is also proving contentious with the Conservative Party. Some senior members are unhappy about May’s stance, calling on her to make a unilateral promise to EU nationals living and working in the U.K. that they will not be thrown out after Brexit.

Despite ongoing uncertainty, the majority of business leaders -- 96 percent -- were confident their company can adapt to life outside the EU. Over a five-year period, almost one-third said they thought their business would start to feel the positive effects of leaving the EU . “Businesses are also ready to adapt in order to survive, and thrive,” Page said.

— With assistance by Simon Kennedy

(Updates with Bain study on supply chains in 11th paragraph.)
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