Prospects for a Brexit Deal Cheer Businesses, but Big Questions Remain
October 17 2019 - 4:15PM
Dow Jones News
By Alistair MacDonald in London and William Boston in Berlin
European businesses welcomed a potential deal to avoid a messy
break between the U.K. and European Union, but investment plans
that many companies have put on hold aren't likely to get started
anytime soon.
The deal thrashed out between London and Brussels spells out the
terms of Britain's departure from the bloc, but not the terms on
which both sides will trade -- the most important factor for many
businesses. The deal itself also faces tough odds in the U.K.
parliament, which will take it up this weekend and could reject
it.
"Before we had no agreement, now we have a proposal," said a
spokesman for French car giant PSA Group, which sends its Peugeots
and Citroens to Britain and makes its Vauxhall models in the U.K.
"But we're not at the end of the process."
British-based businesses currently trade freely with Europe.
Brexit uncertainty has vexed industry since the June 2016
referendum to leave the EU, sapping business investment from the
British economy. Amid months of political gridlock, companies on
both sides of the English Channel have been bracing for the
worst-case scenario: a disorderly break without a deal.
Companies have stockpiled at levels not normally seen outside of
wartime. Manufacturers and pharmaceutical firms have stockpiled
food, spare parts and drugs. Importers in the U.K. have mapped out
alternative supply routes to avoid busy ports that might have been
overwhelmed in a no-deal break.
Business investment in Britain fell 1.1% between the quarter
that followed the referendum and the second quarter of this year,
according to the Office of National Statistics. That might not
sound like much, but typically investment would increase over such
a period of economic growth, as it did across much of the developed
world.
Overall, analysts at Capital Economics calculated that Brexit
has wiped out some GBP19 billion ($24 billion) in potential
business investment, equivalent to around 1% of U.K. gross domestic
product.
On Thursday, business associations and some companies cautiously
welcomed news of the new deal. Should Parliament approve it,
companies would have another 14 months of a no-changes transition.
Trade talks between the U.K. and EU would also start, offering
businesses hope a trade pact might be in place before the end of
that period.
Charandeep Singh, the deputy chief executive of the Scottish
Chambers of Commerce, said a deal, for instance, gives some clarity
on EU workers' rights to stay in the U.K. The deals spells out a
guarantee of citizens' rights.
Capital Economics predicts that a Brexit deal could push gross
domestic product growth up to 1.5% in 2020, versus a forecast 1.0%
if Brexit continues to be delayed. Growth could hit 2.2% in 2021,
versus 1.5% in a no-deal scenario.
"If you have a pipeline of investment business
investments...some of these projects may come back on stream," said
Andrew Wishart, U.K. economist at Capital Economics.
Still, negotiations over a trade deal could take some time --
extending the same sort of investment uncertainty businesses have
lived through over the last three years. A trade deal between the
EU and Canada, for instance, took seven years of negotiations. That
pact has been held up by many EU and U.K. officials at the time as
one possible model for a future deal with Britain.
"Big questions remain about the feasibility of negotiating a new
trade agreement deep enough in a 14-month transition period,"
Carolyn Fairbairn, the director-general of the Confederation of
British Industry, a U.K. business organization, said in a press
release.
Car companies have been particularly caught by Brexit
uncertainty. Peugeot maker PSA has threatened to slash production
of cars in the U.K, if the country crashed out of Europe with no
deal, a threat that other foreign companies have also made.
A spokesman for Volkswagen AG, Europe's biggest auto maker, said
it was hard to comment on the deal before seeing more information
about it. But "a deal is better than no deal," he said.
Write to Alistair MacDonald at alistair.macdonald@wsj.com and
William Boston at william.boston@wsj.com
(END) Dow Jones Newswires
October 17, 2019 16:00 ET (20:00 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.