Trick-or-treating could get serious this Halloween if the UK government’s latest deal for Brexit is rejected, then it's back to the drawing board and the UK could risk another Brexit extension or leaving the EU without a deal.
So, whilst we await the verdict, how might the potential outcomes impact UK businesses that conduct international trade?
Leaving the EU with a deal
Now a deal has been agreed by the UK and EU, it’s Parliament’s turn to give it the green light – something it has been reluctant to do thus far.
If the deal does get across the line in time, the pound could find itself on firmer footing after suffering at the hands of Brexit-fuelled uncertainty for over three years. According to a new poll of economists, the currency will get a post-Brexit boost if the UK leaves the EU with a deal; a logical conclusion given that signs of a deal or progress in negotiations have boosted the value of the pound since the 2016 referendum. This would be a welcome outcome for businesses that import goods or services to these shores, as the cost of doing so reduces. Whether the pound strengthens or not depends entirely on the deal itself. If the market feels it’s economically beneficial to the UK, the pound is likely to gain ground on other currencies.
You’d be forgiven for thinking a no-deal Brexit is practically impossible after MPs approved legislation to block Britain leaving the EU without a deal on 31st October. The Benn Act requires Mr Johnson to ask for an extension to the Brexit deadline unless a withdrawal agreement is approved, or Parliament agrees to leave the EU without one by 19th October.
But this is Brexit, and anything is possible – even if it means sidestepping the law. So, with a no-deal Brexit still very much on the table, what would it mean for cross-border businesses in the UK if it became a reality?
- Trade – Brexiting without a deal means there won’t be a 21-month transition period. Instead, the UK would leave the customs union and single market – arrangements designed to make trade easier – with immediate effect. Many politicians and businesses believe this would damage the economy; others say the risks are exaggerated. The UK would subsequently default to World Trade Organisation trade rules. And while it would no longer be bound by EU rules, it would have to face the EU's external tariffs.
- Pound – the pound could plummet across the board if the UK crashes out of the EU without a deal, as political and economic uncertainty intensifies. The Bank of England has warned the pound would crash, inflation will soar and interest rates would have to rise in the event of a disorderly no-deal Brexit. US investment bank Morgan Stanley has forecast a potential slump to parity for the pound against the US dollar if the UK leaves the EU without a deal. That would represent a record low for the pair, eclipsing £1=$1.05 experienced in 1985 during the Thatcher-era sterling crisis.
- Borders – the UK would be free to set its own immigration controls for EU nationals and likewise, the EU could do the same for UK citizens. There could be long delays at borders if passport and customs checks are heightened.
Cabinet ministers have claimed the government will obey the so-called Benn Act if the UK and EU can't thrash out a deal, but the Prime Minister has been clear that he has other intentions. What’s more, his adviser Dominic Cummings has hinted at “loopholes” within the legislation. For example, there has been some speculation that Mr Johnson could request an extension, before telling the EU to ignore his request. If he refuses to pen a letter asking for an extension of Article 50, he is likely to face a legal challenge.
While a further Brexit delay would represent a more favourable outcome than a no-deal for the pound in the short-term, it would remain at the mercy of Brexit-fuelled uncertainty with much still to be resolved.
Let’s not forget the legal option of cancelling Brexit altogether by revoking Article 50. Ok, this isn’t at all likely under the current government, but with a snap election expected after 31st October, it potentially comes into play. Liberal Democrats leader Jo Swinson has stated that if her party won a majority in the House of Commons, they would revoke Article 50 and cancel Brexit – an unlikely outcome, but further evidence of the uncertainty surrounding Brexit.
Get help from a currency specialist
Deal, no-deal, a further delay or even no Brexit at all – the pound’s aversion to political and economic uncertainty certainly hasn’t been helped by the ongoing Brexit saga. The UK’s departure from the EU is out of your control, so take charge of your international payments by working in partnership with a currency specialist.
One outcome you can be certain of during this period of heightened uncertainty, is the expert, personal service you’ll receive from RationalFX. Their award-winning offering can help you manage your business’s exposure to Brexit-fuelled currency market risk. As well as receiving market guidance from a dedicated account manager – an invaluable resource that facilitates informed decision-making – you can access a range of exchange tools that will help your business implement an effective currency risk management strategy. For example, you can secure an exchange rate for up to two years using a forward contract. So, when your business executes an international payment, you will know exactly what your revenue or costs will be, no matter what direction the market moves in the meantime.
If you'd like more information about our services or further details about managing your FX risk during and post-Brexit, get in contact with our currency experts!
Call: 0207220 8181 or create an account with us.