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Brexit… Where To From Here? Does Anyone Know?

8 Minute Read
Written by Andy Moylan
12 September 2019

Who would have thought a year ago Australia would win The Ashes and our political scene would be seemingly stable! Unfortunately, this is not the case for our friends over in the UK. NCI asked Andy Moylan, Managing Director of specialist credit insurance broker EFCIS and The Export Hub, for his thoughts on the current state Brexit and what this potentially means for the UK economy

As Brexit negotiations reach a climax, how is Britain’s economy doing? Both Remainers and Leavers acknowledge that since the nation voted to leave the EU two years ago, the UK economy has been disappointing but not disastrous.  However, in the event of “no deal”, the UK is forced to trade on WTO terms and as a consequence economists are forecasting a significant increase in company insolvency in addition to a reduction in GDP, which, in turn could negatively impact upon employment, productivity and consumer confidence.

There are significant concerns from many UK companies that the supply chain would be interrupted and currently a number of these companies are stockpiling products which in-turn is having a negative impact on working capital.  It is estimated that UK warehousing is at 100% capacity and UK companies are incurring additional costs for storage.

“In the event of a no deal I believe that the UK will go into a recession, in part due to interruption of supplies and not relating to consumer demand like previous recessions” says Andy Moylan from “The Export Hub”.

So, what is next:

Boris Jonson needs to go to Brussels on the 17th of October and negotiate a deal which would acceptable to Parliament or ask for an extension to say the 31st of January 2020.  However, there is no guarantee that the EU will either renegotiate the terms of Brexit or agree to an extension.  If this is the case the UK could leave the EU on the 31st of October without a deal and revert to WTO tariffs.

“It is estimated that UK warehousing is at 100% capacity and UK companies are incurring additional costs for storage.”

What are the two most likely scenarios in the event of a no deal?

Scenario 1:

Boris Johnson negotiates a deal which includes a workable solution for the Irish Backstop which would be acceptable to parliament. When you consider the Brexit, deal put forward by Theresa May earlier in 2019 the major area of controversy was the Irish Backstop.

What is the Irish Backstop?

The Backstop is an insurance policy contained in the withdrawal agreement negotiated between Mrs May and the EU to avoid a hard border.

The original plan was for the withdrawal agreement to be passed by parliament and for Britain to enter into a transition period.

This is essentially a standstill period, in which Britain would continue to follow EU rules and regulations, with the intention being that this time would be used by government and businesses to get ready for Brexit to take full effect.

In this period both sides would negotiate the terms of the future relationship between Britain and the EU.

Mr Johnson is now trying to find a way through the deadlock – and tweaking the backstop rather than getting rid of it altogether has been suggested as a potential compromise.

In a development that will leave seasoned Brexit observers feeling like they’re in Groundhog Day, this idea has cropped up once more.

DUP’s Foster: ‘It is very important that the Backstop goes’

So why is the arrangement so controversial?

This was because of concerns it would effectively create a border in the Irish Sea due to the need to check goods passing between Northern Ireland and Great Britain.

She pushed for a UK-wide version instead, in order to avoid this issue.

But either way, the Democratic Unionist Party and many Conservative MPs are opposed to the backstop.

If Boris Johnston is successful in negotiating a new Brexit deal acceptable to parliament, he may then call a snap election.

Scenario 2

If Boris Johnson is not successful in negotiating a deal and he refuses to ask for an extension, then we either leave the EU on the 31st October without a deal, he resigns, or we have a snap election or even a second referendum.  This is assuming that an agreement to an extension on the strict understanding that the UK will either have an election or second referendum.

We are in unchartered waters and no one can say with certainty what will happen, however what is certain is the UK whatever happens is sailing in unchartered waters.

In addition to the challenges of Brexit it highly likely that the election would result in a hung parliament which in turn will result in further challenges in securing voting approval for both domestic and overseas policies.

Watch this space as the fun and games are certainly not over.

Brexit Timeframe:

2016

20th February:  PM David Cameron announces plans for a decisive in-out referendum on Europe

23rd May: Referendum

24th May: UK votes 52% to leave the EU and David Cameron Resigns

13th July Theresa May wins Leadership contest

11th September: Foreign secretary Boris Johnson launches new pressure group called “Change Britain”, with an aim to force the government to choose the “hard option for Brexit. Taking the UK out of the EU and the single market as quickly as possible.

Mid-September: Sterling begins to fall

3rd of October: Sterling falls sharply

2017

17th January: Theresa May outlines her plans for Brexit which rules out remaining

24th January: Supreme Court rules that the government must obtain approval of parliament before starting the Brexit process following many months of appeal.

29th March: UK give notice of its intention to leave the EU under article 50 of the EU Lisbon Treaty following many months of parliamentary debate

18 April Theresa May calls a snap General Election

13th June Election result a hung parliament with Conservatives losing its majority

16th June Theresa May secures a deal with the DUP

19th June Brexit discussions commence

2018

6th July:  Theresa May present her Brexit plan to cabinet members which she hopes would unite her party

9th July: UK’s Chief Brexit negotiator, David Davis resigns along with Boris Johnson

14th November: Theresa May announces that a deal has been struck on the terms of Brexit with the EU.

15th November: 4 more Conservative Ministers resign

11th December: The house of commons postponed the vote to accept or reject Theresa May’s Brexit Deal.

2019

15th January Parliament Vote for Theresa May Brexit deal and rejects deal

24th May: Theresa May Resigns as Prime Minister given that she could not find a solution to Brexit

24th July: Boris Johnson becomes Prime Minister

28th of August Boris Johnson suspends parliament which is being appealed by the high court as to its legality

Early September: House of Commons voted against a no snap election and no deal and for an extension if needed against Conservatives and Boris Johnson.

11th September: Supreme Court

Andy Moylan
EFCIS
11/09/2019

What are the two most likely scenarios in the event of a no deal?

Scenario 1:

Boris Johnson negotiates a deal which includes a workable solution for the Irish Backstop which would be acceptable to parliament. When you consider the Brexit, deal put forward by Theresa May earlier in 2019 the major area of controversy was the Irish Backstop.

What is the Irish Backstop?

The Backstop is an insurance policy contained in the withdrawal agreement negotiated between Mrs May and the EU to avoid a hard border.

The original plan was for the withdrawal agreement to be passed by parliament and for Britain to enter into a transition period.

This is essentially a standstill period, in which Britain would continue to follow EU rules and regulations, with the intention being that this time would be used by government and businesses to get ready for Brexit to take full effect.

In this period both sides would negotiate the terms of the future relationship between Britain and the EU.

Mr Johnson is now trying to find a way through the deadlock – and tweaking the backstop rather than getting rid of it altogether has been suggested as a potential compromise.

In a development that will leave seasoned Brexit observers feeling like they’re in Groundhog Day, this idea has cropped up once more.

DUP’s Foster: ‘It is very important that the Backstop goes’

So why is the arrangement so controversial?

This was because of concerns it would effectively create a border in the Irish Sea due to the need to check goods passing between Northern Ireland and Great Britain.

She pushed for a UK-wide version instead, in order to avoid this issue.

But either way, the Democratic Unionist Party and many Conservative MPs are opposed to the backstop.

If Boris Johnston is successful in negotiating a new Brexit deal acceptable to parliament, he may then call a snap election.

Scenario 2

If Boris Johnson is not successful in negotiating a deal and he refuses to ask for an extension, then we either leave the EU on the 31st October without a deal, he resigns, or we have a snap election or even a second referendum.  This is assuming that an agreement to an extension on the strict understanding that the UK will either have an election or second referendum.

We are in unchartered waters and no one can say with certainty what will happen, however what is certain is the UK whatever happens is sailing in unchartered waters.

In addition to the challenges of Brexit it highly likely that the election would result in a hung parliament which in turn will result in further challenges in securing voting approval for both domestic and overseas policies.

Watch this space as the fun and games are certainly not over.

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