How on earth do consumers, employees and businesses react to the latest Brexit news? Let's attempt to stand back and look at the key points and what they mean for jobs, consumers and the economy.
What are the options now ?
The harder the Brexit, the worse it will be for Ireland. The good thing about the draft withdrawal deal is that, if approved, it would take the dreaded "no deal" scenario off the table. However the bad news is that clearly Theresa May will face huge problems getting it all through the House of Commons.
So a range of possible outcomes remain on the table and the difficulties for consumers and businesses is that they are hugely different in terms of their likely impact.
They seem to break into three – or maybe four – baskets. The withdrawal deal could, somehow, be approved. There could be a “no deal” exit next March. Or political developments could lead the UK back to a new Brexit vote. The fourth, possible, scenario is a decision to extend Article 50 and the UK’s exit to allow for more talking, though the circumstances under which this might happen are unclear. The EU has already indicated that it is not going to offer any more.
What do the different scenarios mean?
A finalised withdrawal agreement would mean not much would change next March when the UK leaves the EU. This is because a transition period would start, lasting until the end of 2020 – and possibly longer.
So it would be “ as you are” next March. We still would not know what the long-term relationship would be between the EU and UK, of course, but there would be more time to start sorting this out and a good chance that the transition period would be extended, as allowed for in the draft agreement.
However if the withdrawal agreement falls – and there is a strong chance now it will not be voted through in the House of Commons – then fears will rise of a “no deal” exit next March. This could be chaotic, bringing forward all the costs of Brexit to our economy into a much shorter time frame. We would be facing into significant short-term economic uncertainty.
How are Irish businesses dealing with this?
For businesses, the key message is that the draft withdrawal agreement does not remove the risk of a no-deal Brexit, which would lead to the the sudden erection of trade barriers, new bureaucracy, disruption and delays.
Those exporting or importing to the UK need to consider their ability to deal with customs procedures, in case they are suddenly imposed. Carol Lynch, partner with BDO specialising in trade, says that many companies are building up those customs ability in house by training existing staff, with a severe shortage of anyone with expertise to hire. State bodies such as Bord Bia are running programmes to help this retraining. Companies are also examining their supply chains which may be affected if they cross the UK/EU border.
" Doing nothing is not a sensible option", said Feargal O'Rourke, managing partner at PwC. Businesses are already starting to press the button on emergency planning, with some Irish firms – for example – stockpiling goods in the UK market to avoid any shipping or bureaucratic delays post Brexit.
The problem for businesses is that this could prove money wasted. However with time short businesses have little option but to push forward with their preparations. According to O’Rourke, the likely options should at least be clearer in the weeks ahead.
What about households?
The main message of the last few days is that the uncertainty caused by Brexit to the economic outlook remains, for now anyhow. For this to be removed, we need the draft withdrawal agreement published this week to come into force, and that now looks shaky. So we are heading into a period of uncertainty, likely swings in the value of sterling and the risk of a hit to the economy next March if the UK leaves without a deal.
This could affect growth and jobs next year, effectively bringing forward the costs of Brexit into a much earlier and shorter timeframe. Particularly vulnerable in a no deal situation would be parts of the Irish food sector, with job losses and restructuring likely.
For consumers there could be short-term supply disruptions of goods coming into Ireland and increased prices. An ESRI study found that on average a hard Brexit could increase the cost of living here by around 3 per cent, costing households €1,400 a year. Delays, bureaucracy and tariffs would have a particular impact on basic consumer products imported from the UK.
The price of items like cereals, tea, coffee, confectionery, sugar and detergents could rise by 20 per cent of more,according to the ESRI, a particular hit to lower-income households who spend a large proportion of their cash on these basic products.
But the chaos of a “no deal” Brexit could be significant, particularly given the ending of common rules and regulations between the EU and UK in a whole hose of areas from product and food safety to pharma, medical devices and aviation. Detailed no-deal plans will be published if necessary by the Government in the months ahead and we must expect that measures will be taken to ensure, for example, continued supply or drugs in the Irish market, many of which currently come in from the UK under UK regulation which will no longer apply in the Irish market.
Those with investments should also look as some Brexit-proofing of their portfolio. The IMF and others have warned of a significant hit to the UK economy, where growth forecasts are already modest. This would hit companies aimed at selling into the UK market in particular. Shares of UK housebuilders, retailers and banks fell sharply on Thursday as no-deal fears resurfaced, for example, while the fall in sterling led to some support for companies which export from the UK.Irish shares also fell, due to investor nerves about the impact of our hard Brexit on our economy.
You mentioned sterling?
The UK currency has ebbed and flowed as the Brexit talks have gone on, though generally within a tight enough rang of between 87p and 90p against the euro. The currency rallied earlier this week as the draft withdrawal agreement was finalised by fell sharply on Thursday as Theresa May’s political troubles intensified.
"Given the extent of the political uncertainty, it wouldn't be surprising to see further volatility and downside for the pound, potentially taking the UK currency to the bottom, or even out, of its recent range pending some clarity on the political landscape and associated implications for the Brexit process," said Simon Barry, chief economist at Ulster Bank. Previous bouts of Brexit-related volatility took the rate as far as 93p, he pointed out. Studies have shown that this is well into danger territory for Irish exporters.
Barry points out that sterling’s reaction has been muted enough over recent days, showing that investors like the rest of us – are finding it difficult to judge what will happen. A move back towards a softer version of Brexit would boost the currency.
With the possibility of a second Brexit referendum, for example, a whole range of conflicting outcomes for the UK currency are still possible, ranging from a crash-out Brexit at one end to the other extreme of a second vote reversing the original Brexit decision.
Can a no deal Brexit really be allowed to happen?
This has been the threat pushing both sets of negotiators forward towards a withdrawal agreement. In particular the EU side has consistently said that it is either a negotiated deal or a no-deal exit. In part this has been to maintain the pressure on the UK to reach a deal. However more lately compromises on the UK side show fears in EU capitals of the chaos of a no-deal, too.
Privately, business leaders and senior government officials speculate on whether, if it came to it, a way would be found to avoid the UK crashing out. What happens if there is a UK general election, for example, or a second referendum? Does the EU agrees to extend the Article 50 process and the UK’s exit date? Doing this is possible but requires unanimous agreement.
Alternatively, measures could be agreed to limit the damage of the no-deal exit, though politically doing so is difficult given the likely political fall-out if the UK does not sign up. What about its future financial commitments to the EU, for example.
So while everyone agrees that a no-deal exit would be chaotic and in neither side's interest, nobody seems quite clear how it will be avoided. For the moment the EU side will push forward with its no-deal planning, but the stark reality – widely admitted in government and business circles across Europe – is that nobody is fully ready for a no-deal exit and everyone is worried about what it could mean.
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