Prospects for a Brexit Deal Cheer Businesses, but Big Questions Remain

Date : 10/17/2019 @ 8:15PM
Source : Dow Jones News
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Prospects for a Brexit Deal Cheer Businesses, but Big Questions Remain

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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.


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