A standoff between Prime Minister Theresa May and the European Union (EU) over a Brexit delay has put the prospect of a cliff-edge departure back in play for British companies.
“If you’re a business now thinking no-deal was off the table,” Wednesday’s events “will be a bit of a shocker,” says Mats Persson, head of Brexit strategy at EY in London. “If the EU doesn’t grant Parliament an extension, no-deal happens.”
May asked the EU for a three-month delay of the Brexit deadline to June 30. While she’ll make her case to EU leaders at a summit Thursday, European Council President Donald Tusk said such a short extension would be possible only if the U.K. Parliament agrees to enact the existing divorce deal—which it’s twice rejected—by the current exit day of March 29.
Businesses have been in limbo since the U.K. voted to leave the EU in 2016, unsure whether Britain would remain close to the trading bloc or completely break away. Even if May is granted a delay by the EU and no-deal is averted this month, there are still complications for business.
A short extension might be welcome for companies that are behind in their no-deal Brexit planning, but it will create extra costs for those that have amassed seasonal or perishable stockpiles, like food, medicine, and fashion products, says Emily Khan, who advises firms on contingency plans as Beyond Brexit lead at PwC in London.
“What you have that’s appropriate for sale in April might not be appropriate for July,’’ she says. “In that case, you’ve not got a lot of time to run down a larger-than-normal stockpile and build up another one.”
Bini Ludlow, whose Bini Fine Foods in southwest England makes luxury Indian ready-to-eat meals, is stockpiling packaging materials and fretting about a disruption to imports such as fresh tomatoes and coriander, which she uses in her curries.
“We can’t plan what to do,’’ she says. “I hope a decision to stay in the EU is made so we can just get on with business as usual.”
For Group Rhodes Ltd., a maker of specialist machinery in northern England, May’s plan to delay Britain’s departure from the bloc would prolong uncertainty with no guarantee that a damaging no-deal exit will be avoided in the end.
“We’ve never been in circumstances like this,” says Mark Ridgway, the company’s CEO, adding that customers in Europe and the U.K. are holding off orders because they don’t know what to expect. “When you’re buying a big bit of kit, you’ve got to be sure about market conditions before you invest.”
Deferring Britain’s departure would also be a headache for carmakers such as Jaguar Land Rover Automotive Plc, BMW AG, and Honda Motor Co., which planned downtime for their factories in April. The shutdowns followed government advice to prepare for a no-deal Brexit, but may now mean they won’t be producing cars while Britain still has access to Europe’s single market.
“Everyone was planning toward that date,” says Stephen Phipson, chief executive of Make UK, a manufacturing lobby group. “Most people are at the end of their tether.”
Brexit’s chilling effect on investment has already been weighing on the U.K. economy, prompting the worst year-on-year decline in the fourth quarter since the financial crisis. Dwindling spending by companies will take several years to recover even if Parliament agrees to a Brexit deal soon, according to the former deputy governor of the Bank of England.
Even if the U.K. ends up seeking a longer extension, that would only exacerbate the hit to investment, says David Smith, managing director of Specac Ltd., a Kent-based maker of laboratory equipment that exports 90 percent of its products.
“It just reinforces the point even more that we’re in such a shambles,’’ says Smith, who worries that Brexit will hurt trade with EU customers. “We’ve given up trying to make sense of it.’’
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