Brexit has become a nail-biting game of high-stakes poker, and it might be costing Britain big-time.
While the deadline for Britain and the European Union to reach a trade deal is inching dangerously close to the March 29 “leave” date, the costs to the British economy are rising. Already the tab is expanding at blistering rate: £800 million ($1 billion) a week, according to Bank of England estimates. In addition, the United Kingdom’s economy is slowing. It grew at a paltry 1.3% annualized rate in the latest reading, the slowest pace since 2012, according to government data.
Lack of clarity about whether Britain will have a trade deal with the EU later this year may be partly to blame. The increased uncertainty about what trade relations the UK will have with the EU after March raises risks for executives, says Mary MacLeod, a former Conservative Party MP and now senior client partner for the Board and CEO Services practice at Korn Ferry, and head of the firm’s Government and Public Enterprise practice in London. “Business leaders do not like uncertainty over the short, medium, or long term,” she says.
That uncertainty means executives need to make multiple plans for each likely outcome of the EU–UK talks. However, as the date draws closer, business chiefs find they can no longer wait. They have to act now. “Some leaders are already making decisions that they need to make,” says MacLeod. That may mean opening up offices in other countries to ensure that business can continue no matter what happens.
Dublin, Frankfurt, Paris, and Amsterdam are already among the familiar names cited as destinations for new offices or factories for UK-based companies. When such moves take place, it’s an economic boost to the new host country. The newly established operation adds local employment, increases government tax revenue, and ultimately more money gets spent outside the UK.
It is also true that some of the changes in the British economy aren’t wholly Brexit-related. The world economy is slowing. Italy is now officially in recession, Germany is on the brink of one, and the United States isn’t likely to replicate 2018's tax-cut fueled economic boom this year.
MacLeod also points out that beleaguered high-street retailers across the developed world are suffering because buyers increasingly prefer to buy online. That's true whether in Britain or San Francisco. The only difference is that Brexit is making life even worse for most retailers. “People are spending less because of the uncertainty,” she says.
It isn’t all bad in the UK. Wages for British workers are growing their fastest since the financial crisis, at a 3.3% annualized rate, more than double the 1.5% rate of inflation. Employment is high, and at 4% the unemployment is low.
Part of the wage growth is almost certainly down to Brexit. “Now that it is harder to persuade our European cousins to come work here, that might well be driving up the cost of labor,” says Mark Thompson, a senior client partner for Korn Ferry in the UK’s Midlands region. Britain relies on immigrants and foreign workers in the retail, hospitality, and medical care industries, and that may get worse after the official Brexit date. That's because it won't be so easy for companies to get workers such as nurses and bar staff from the EU as it was before Brexit.