British businesses are totally unprepared for a no-deal Brexit despite having years to plan ahead, the Bank of England (BoE) warned on Wednesday.
“Survey and other evidence suggests that many UK businesses are not well advanced in planning for a sudden transition to new trading rules,” the central bank noted in a new report Wednesday outlining the potential economic impact of Brexit under different scenarios.
Bank of England governor Mark Carney highlighted some stark numbers:
- Less than 50% of UK-based businesses have begun making contingency plans for a potential no-deal Brexit
- Less than 20% of small UK businesses have worked on contingency plans
- Up to 250,000 businesses have never completed a customs declaration form, which would be required after a no-deal Brexit to continue trading with the European Union
- 11 out of 12 major projects to replace critical UK border systems may not be delivered in time for Brexit in March 2019
The UK’s biggest trading partner is the EU, providing a market for about 44% of all British exports of goods and services, and supplying more than half of its imports. Current trade between the two sides is frictionless, with minimal border checks.
But that could all change if the UK leaves the EU without an approved Brexit divorce deal. There have been warnings about queues running for miles as ports struggle with a sudden slowdown due to new border checks.
Prime minister Theresa May is struggling to convince the majority of members of parliament to approve her Brexit deal with the EU in a vote scheduled for 11 December. Many fear it keeps the UK too closely tied to the EU, while others would prefer no Brexit at all.
If MPs don’t approve May’s deal, it raises the risk that the UK could be forced to brace for a no-deal, cliff-edge Brexit.
May’s deal includes the terms of the UK’s divorce, along with an outline of plans for the future relationship between the EU and UK. It also includes plans for a transition period until at least the end of 2020, to allow businesses and consumers to adjust. But a transition period is not a sure thing until the UK ratifies the deal.
“Securing an implementation period will minimise impacts on the UK economy,” Carney said in his prepared remarks. “This implementation period should be as long as necessary to prepare properly for the new trading relationships, but no longer.”
The BoE also warned on Wednesday that the UK economy could shrink by about 8% in 2019 if there’s a no-deal Brexit with no transition period. That would be a sharper, more painful drop than the global financial crisis, and the worst since the early 1920s. But it said the banking system was ready for any potential Armageddon-style economic fallout, after banks passed new 2018 stress tests.
The BoE warnings come just hours after Britain’s government issued a separate report outlining that a no-deal Brexit would lead to a dramatic slowdown of the economy over the next 15 years.
The government warned that a no-deal Brexit would leave the UK economy about 9.3% smaller in the next 15 years compared to a scenario where the UK remained in the EU. The analysis considered that under this scenario, there would be tightly restricted flows of European immigrants and higher trading costs with the EU.
The other scenario – roughly in line with May’s Brexit deal for the UK – is also a significant economic downgrade, but the shock would be less severe. The government anticipates the economy would be about 3.9% smaller in 15 years’ time under May’s plan.
With files from Reuters