Brexit & EconomyPoliticsArticle 50 triggered, but cliff edge is a ‘realistic scenario’, says KPMG

Article 50 triggered, but cliff edge is a ‘realistic scenario’, says KPMG

Speaking in the House of Commons minutes after triggering Article 50, prime minister Theresa May said that it was a 'historic moment from which there can be no turning back'

Article 50 triggered, but cliff edge is a ‘realistic scenario’, says KPMG

Prime minister Theresa May has triggered Article 50 following the delivery of a letter by Sir Tim Barrow, UK ambassador to the EU, to the president of the European Council Donald Tusk in Brussels.

Speaking in the House of Commons minutes after the letter’s delivery, Theresa May said that it was a “historic moment from which there can be no turning back”. It was now “time to come together”, the prime minister said, as she begins negotiations to build a “stronger, fairer, better Britain”.

Business uncertainty

While May reiterated her commitment to getting the best deal for the UK before the two-year deadline, those in the business industry are uncertain of final outcome of the negotiations. Karen Briggs, head of Brexit at KPMG, said that most CEOs had already put Brexit plans in place across the UK, now that “the spectre of a cliff edge situation has become a realistic scenario.”

“Although individual companies have different levels of Brexit exposure, the majority are deep into scenario planning and some firms are beginning to reconfigure their businesses. This means talking to and reassuring staff, seeking new regulatory approvals, and shifting certain parts of their operations,” commented Briggs.

She said: “The exchange rate means the UK is now less attractive as a country in which to work and the supply of EU nationals is beginning to dwindle – although the exchange rate is good for overseas investment. We’ve already seen some call centres manned by EU nationals in the UK being moved to EU countries. Universities have seen the number of EU nationals drop and expect that trend to worsen further next year. Life sciences have seen how EU nationals are often staying away.”

“Our advice to business is that it has become untenable to not have a Brexit plan,” Briggs added.

Also highlighting the need for businesses to plan for Brexit was David Sproul, senior partner and chief executive of Deloitte. He said: “The government’s announcement today that it has triggered Article 50 is the first formal step to our country’s exit from the European Union.

“With a well-established legal and political system, strong infrastructure, and a language that is used throughout the business world, we should be confident in the UK’s ability to withstand the uncertainties of leaving the EU.

“Yet while the hope is that the UK can secure the best possible deal on trade and market access, businesses must continue to plan for an exit in 2019, several years of trade negotiations, and a transitional phase to bridge the two. For many businesses, including our own, access to skills is one of the most pressing issues they face. I believe mobility of people should be as high a priority as trade in the future negotiations. If we are to maintain the UK’s status as an open and thriving economy we must retain the diversity of skills that has helped our nation flourish.”

Impact on economic growth

Looking at the impact of Brexit on the economy, uncertainty surrounding the UK’s negotiations with the EU is likely to cause slower economic growth this year and in 2018, said PwC. Senior economic adviser at the firm Andrew Sentance said that the slowest growth since the Euro crisis in 2011-12 is expected, with 1.6% growth forecast for this year and 1.4% in 2018.

“The longer term outlook for the UK economy will depend on the success of the negotiations with the other EU countries and our ability to maintain a high degree of open access to EU markets,” he said.

Defined by determination to succeed

With elections taking place in France and Germany over the coming months, it’s likely that May will have to wait until later this year to get her feet under the negotiating table. She is determined to promote unity across the UK so that “we are no longer defined by the vote we cast but by our determination to make a success of the result”. With a challenging and uncertain two years ahead, only time will tell if the prime minister is successful in her aim.

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