Delaying Britain’s departure from the EU would be better for the economy in the longer term – but the move could also have a damaging impact on firms that have spent two years preparing for a 29 March exit and now face the prospect of planning for a double cliff-edge, in March and June, business leaders have warned.
Companies across Britain now face the growing likelihood that the Brexit process could be delayed beyond the end of March, after Theresa May told parliament that MPs would get a vote on Thursday 14 March on extending the article 50 process – if the Commons has not passed a deal by then, and if MPs vote to reject no-deal.
While that would postpone damage to the economy from crashing out on 29 March, it would not remove the risk of no-deal Brexit at a later date. Meanwhile, the continued cloud of uncertainty would act as a drag on the economy for a longer period.
Ahead of next month’s vote on extending article 50, companies face the prospect of a potential double cliff-edge to plan around. It also comes after the government has in recent months issued repeated warnings telling firms to prepare for a no-deal Brexit next month.
A spokeswoman for financial firms in the City warned that an extension to article 50 could leave firms in limbo. Catherine McGuinness, policy chair at the City of London Corporation, welcomed the prime minister’s plan but also warned that it must not be “a bridge to nowhere”. McGuinness said a deal was needed “to enable City firms to plan for the future”.
Liberal Democrat Brexit spokesman Tom Brake said it was a “positive step” that MPs would now have the chance to avoid a no-deal exit. But he added: “Rather than ending the uncertainty, the PM has instead created a potential double cliff-edge that businesses will need to plan for.”
Businesses have spent the past two years preparing for a potential cliff-edge Brexit on 29 March, ramping up their planning in recent months as parliament has become increasingly gridlocked over the issue. Some observers said it was too late for companies to alter their plans.
BMW has set out plans to shut its Mini plant for a month at the end of March to minimise the impact of a no-deal Brexit that it fears would cause a shortage of parts.
Many businesses have raised their stockpiling efforts in recent months in anticipation of the March Brexit date, while others are relocating activities elsewhere within the EU or otherwise changing their plans.
Although buying more political manoeuvring time and avoiding immediate harm to the economy, dragging out the article 50 process could have the perverse impact of weighing on economic growth. The British economy has come close to stalling over recent months, with analysts blaming the looming deadline.
James Smith, an economist at the City bank ING, said: “A shorter extension might have short-term political and practical advantages, but it would likely be more damaging for the economy.
“A longer extension, while potentially more politically awkward for the UK government, could see growth recover a touch in the near-term as the imminent no-deal threat recedes.”
Carolyn Fairbairn, director-general of the CBI, said avoiding no-deal Brexit at the end of March was essential, but added: “To avoid a hammer blow to firms and livelihoods, delay cannot simply be an extension of stalemate.”
May told MPs that any extension was likely to be short and “almost certainly … a one-off”, potentially for only as long as until the end of June, so as to avoid Britain having to take part in European elections in summer.
Business leaders said firms would need to continue with their planning, even if there was a potential deadline extension.
Claire Walker, co-executive director at the British Chambers of Commerce said: “Businesses still need to ensure they are preparing for all possible scenarios and government and its agencies must provide clear, precise and accurate information for all eventualities.”