With the UK government triggering article 50 to leave the European Union (EU) in March 2017, the two-year exit process will begin. Attention has turned to the details of the “divorce” settlement and negotiations will be centred on the technicalities of withdrawal – including the financial cost to the UK - and the future relationship of the EU and the UK.
Our baseline forecasts assume that a Free Trade Agreement (FTA) is reached but that this would still mean regulatory and other non-tariff trade barriers, some higher tariffs on services, and the loss of EU passporting rights for the financial sector. Yet the scenario of the UK leaving the EU with no deal is a real threat and would have far-reaching implications on the economy. In a No-Deal scenario we expect 2.9 percentage points to be shaved off real GDP growth over five years. The impact on the consumer goods sector is very much dependent on product portfolio and exposure to UK and EU markets.
These issues are explored in detail in our new report: The UK Post Article 50: The Impact of a No-Deal Brexit. We also examine the direct impact a No-Deal Brexit would have on the packaged food, beauty and personal care, hot and soft drinks, tissue and hygiene, home care and travel sectors.
“Hard” Brexit informs our baseline forecasts
Our baseline forecasts assume that a FTA is reached but that this would still mean regulatory and other non-tariff trade barriers, some higher tariffs on services, and the loss of EU passporting rights for the financial sector.
We have seen only a postponement of risks so far
Economic risks remain on the downside for the UK, outweighing in our opinion any opportunities stemming from Brexit. On the whole, the negative impact of the UK’s decision to leave the EU has been postponed, rather than avoided.
A No-Deal Brexit would dampen growth further
Our No-Deal Brexit scenario sees 2.9 percentage points shaved off real GDP growth over five years compared to our baseline forecasts. Real GDP growth would not return to baseline rates of growth until 2025.
The business impact of Brexit is dependent on three chief factors
Exposure to the UK market, product mix, and exposure to EU markets – due to spillovers - all impact on companies’ exposure to Brexit. Companies whose product portfolio contains a high level of discretionary items are most at risk.
Operational and strategic risks predominate for the consumer goods industry
Looking at consumers, although it will be dampened, spending might not be the main challenge for the consumer goods industry. The foremost issues could be operational and strategic – for instance to absorb or to pass on price increases? Relocate or re-focus resources or not? With an ageing population, the strength of the labour market, depending on policy decisions over migration, could pose a longer-term challenge across all sectors.
For more insight, get the full report The UK Post Article 50: The Impact of a No-Deal Brexit here.