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Brexit Summary – September 2019

 

There is a growing interest in the prospect of the UK facing a no-deal Brexit on 31 October 2019 and what this may mean for businesses looking to invest or more to the UK.

To help you understand the current political and economic impact on the UK of Brexit we have prepared a number of points for you to consider:

Economic

  • The Bank of England has cut its forecasts for UK growth over the next two years in its latest report. The UK economy was expected to grow by 1.3% this year, down from a previous projection of 1.5% in May. It has also cut its outlook for growth in 2020 to 1.3%, from a previous projection of 1.6%. These forecasts are based on the assumption of a deal taking place.
  • The Bank's governor Mark Carney said the UK would be smaller, weaker and poorer in the event of a no-deal Brexit.
  • The value of the Pound has fallen consistently since Brexit was announced. At its lowest Sterling hit 93.26 pence against the Euro, $1.2015 versus the dollar. Prior to the vote, the pound was worth $1.4883.
  • This has severely weakened the purchasing power of UK consumers and business.
  • However, it has made the UK more investable as foreign companies get more from their money when buying British companies and goods.
  • Unemployment in the UK is at its lowest levels in decades and wages are rising, but in real-terms most UK workers have seen a cut to their pay.
  • Forecasts for the UK economic situation in the event of a no-deal vary drastically, with some predicting a recession, while others are nearer the current status quo. Few indicate that economic performance will return to pre-Brexit levels, unless a favourable deal is achieved.
  • The Government has prepared plans for a no-deal Brexit, known as Operation Yellowhammer. This anticipates long delays at the borders, shortages of fresh food and the potential for civil unrest in the UK. The Government has committed billions of pounds to minimise these risks.

Trade

  • The European Union (EU) has about 40 free trade deals, covering more than 70 countries. In the event of a no-deal Brexit, the UK would suddenly lose tariff-free access to these markets and it would have to trade under World Trade Organization (WTO) rules.
  • The US has indicated that it is willing to work with new Conservative Government headed by Boris Johnson and has already agreed in principle to place the UK at the ‘top of the list’ for a sector by sector deal in the event of a no-deal Brexit. This could take several years to achieve.
  • Unfortunately, several lobbies in Washington have said they would block a deal if there is a hard border in Ireland, while UK politicians have raised concerns about the impact on the independence of the NHS and concerns about food safety guidelines and workers’ rights being diluted.
  • The UK government is in the process of rolling over the EU's existing free trade deals with other countries.

However, it has already agreed continuity deals with:

The UK has also agreed a deal in principle with South Korea and AustraliaNew Zealand and United States have signed mutual recognition agreements.

Discussions with Japan are ongoing and will not be completed before exit day.

Politics

  • Much of the complexities of Brexit are tied up in the complex political situation in the UK.
  • Boris Johnson came to power after Theresa May stepped down as Prime Minister. He has formed a new Government with new ministers, the majority of whom are pro-Brexit in their outlook.
  • This new Government had an extremely small advantage in the House of Commons of just one seat/vote. This was only made possible thanks to an alliance with the Northern Irish DUP.
  • However, Tory backbenchers have rebelled against the Government meaning that Mr Johnson no longer has a parliamentary majority.
  • Mr Johnson is committed to securing Brexit on the 31 October 2019, including via a no-deal Brexit.
  • He has suspended (prorogued) Parliament in order to try and achieve this, but this decision is currently being challenged via the courts.
  • This suspension of Parliament means that the House of Commons can’t sit and debate Brexit until they return again in October.
  • In order to try and strengthen his position Boris Johnson asked Parliament for a general election to gain more seats, but this has been voted down by the other parties on the grounds that he would not delay Brexit.
  • A vote has also taken place which effectively forces him to ask the EU for an extension, but he has said that he will attempt to avoid this situation and deliver Brexit on 31 October.
  • Mr Johnson and his adviser Dominic Cummings have repeatedly said that they are aiming for a Brexit on this date, but there are now a number of obstacles in his path.
  • In the meantime, he is trying to secure a new deal with the EU that effectively abolishes or finds a workaround to the Irish backstop, but nothing has yet been agreed and any deal will require the approval of Parliament.

The situation surrounding Brexit is very fluid and much is likely to change in the coming days, weeks and months.

The team at Reanda UK are standing by to provide up to the minute advice on this complex situation should you or your clients require it.

The information provided in this summary was correct as of 18 September 2019 and is likely to change regularly.

 

 

Reanda UK has local and international accounting and taxation experts to provide full audit, accounting and tax compliance services, and advice on tax planning for foreign investors to satisfy relevant financial and accounting regulations. Our professionals at the China desk are bilingual, have both UK and China accounting knowledge and will assist you to achieve your success. 
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