British companies selling everything from washing machines to flights, food and mortgages plan to spend tens of millions of pounds in case the political brinkmanship gripping the country leads to a disorderly Brexit.
With barely four months until the world’s fifth largest economy leaves the European Union, a raft of major companies set out plans on Tuesday to counter any trade delays and downturns that could stem from a no-deal scenario.
Electrocomponents, which stocks more than half a million industrial and electronics products, said it would spend 30 million pounds ($38.6 million) in the six months to the end of next March to increase its holding of high-turnover goods in Britain and Europe.
AO World, the online electricals and white goods retailer, might increase stock to mitigate supply chain friction while Compass, the world’s biggest catering firm, is looking to build inventory and vary menus before March 29.
“We are planning very seriously for all scenarios,” said Chief Executive Dominic Blakemore of Compass which provides meals for train customers, hospitals and corporate headquarters.
“We have been working with our suppliers for quite some time to think about how we carry a bit more inventory, how we source supply and how we vary our menu.”
Britain’s vote to leave the world’s largest trading bloc has created a raft of challenges for companies, with financial services groups shifting some assets and people to Europe while manufacturers hunt for storage space to stockpile parts.
Supporters of Brexit say once it has left the country will be free to negotiate new trade deals around the world and ditch regulations they say hamper growth.
But mounting tensions in Westminster, where lawmakers from all parties are opposed to Prime Minister Theresa May’s Brexit deal, have sparked fears Britain may leave the EU with no deal, prompting customs checks that clog up borders and fracture long-standing supply chains.
Issues being addressed include stockpiling, changes in suppliers and production, and changes to regulation.
Ready or Not?
Hours after a handful of companies put out their plans at 0700 GMT [on Nov. 20], the Bank of England had some sobering words.
“I have the impression from talking to businesses (…) that most are not prepared for a no-deal Brexit, and don’t know really how to,” Bank policymaker Michael Saunders said.
Meanwhile, A.M. Best in a new briefing said that when the UK withdraws from the EU, and at the end of any transition period, passporting rights that currently exist between the UK and countries in the European Economic Area (EEA) are expected to cease,
Once passporting rights are lost, UK-domiciled insurers will no longer be able to issue insurance contracts in the EEA, said the report, noting that it is also possible that, in the absence of a political solution, they will not be able to service existing EEA contracts by settling and paying claims.
In the event of a “no-deal” (or “hard”) Brexit, this could happen as early as March 29, 2019, or longer if a transition period is agreed upon.
A.M. Best expects, however, that UK companies will still be able to underwrite reinsurance business on a cross-border basis post Brexit, in all but a small number of EEA jurisdictions.
The Solvency II regulatory treatment of these contracts will depend on whether the UK is granted reinsurance equivalence by the EU, said the ratings agency.
The UK’s draft agreement on the UK withdrawal from the EU, which was published on Nov. 14, 2018, states that financial services equivalence assessments by both parties will commence as soon as possible after the UK’s withdrawal and that both parties will endeavor to conclude these assessments before the end of June 2020, explained the Best’s briefing.
Companies domiciled in other EU countries that conduct insurance business in the UK also will be affected by a loss of passporting rights, said the report, noting that the impact will be cushioned by the UK government’s Temporary Permissions Regime (TPR), which will allow EEA insurers to operate in the UK for a maximum of three years post Brexit while they seek authorization from UK regulators.