After a series of votes to determine how the UK would approach Brexit at the end of March, parliament has finally voted to seek an extension to Article 50, delaying the country’s departure from the EU. After seeing her deal defeated by an historic margin again, Prime Minister May has announced that she would seek a third vote on her deal before the end of the month. Speaker Bercow, however, has indicated that such a vote would not be allowed in the current session.
Following the second vote on May’s deal, parliament determined that they would not allow the UK to leave the EU without any deal at all. As a result, the UK has no choice but to ask the EU for an extension in an attempt to negotiate a different deal. This move was meant by parliament partly to reassure UK businesses that a no-deal Brexit would not occur. Unfortunately, the manner of the UK’s departure is not entirely within their control. Today, businesses are left knowing as little as they did a week ago, or even a year ago.
The UK might still leave with no deal on March 29
While parliament voted explicitly not to accept a no-deal Brexit, they have relatively little power to realistically prevent it. While they can request an extension on Article 50 from the EU parliament, all 27 other countries would need to unanimously approve it in order for it to go into effect. While many MPs appear to take it for granted that the EU would approve such an extension, the bloc has actually issued a number of warnings to the contrary.
Just like in the UK, EU businesses all over the bloc are suffering due to the lack of progress on Brexit. As negotiations have dragged on, and the endless debate within parliament has produced no actionable results, other EU members have begun to lose their appetite for a deal. Head Brexit negotiator for the EU, Michel Barnier, has stated that the EU is prepared for a no-deal Brexit, and doesn’t anticipate that an extension would be approved without a number of attached conditions.
Critically, one of those conditions could derail the entire purpose of seeking an extension in the first place. EU Council President Donald Tusk announced on March 20 that the UK would only be granted a short extension if parliament first accepted the existing deal. Given the state of UK politics, it’s unclear whether this could be done before March 29, when the UK would automatically cease to be an EU member. Moreover, if parliament were to accept May’s current deal, negotiating a new deal during an extension becomes unnecessary.
What ongoing uncertainty means for UK businesses
Businesses, if such a thing is even possible, are now left with even more uncertainty than before. With no guidance over whether or not there will be a deal, what kind of deal is possible, or when the UK will leave, it’s more difficult than ever for businesses and investors alike to predict and prepare for the future. Since the most recent round of votes, MPs have even begun to seriously discuss the possibility of revoking Article 50 entirely, though there still appears to be little appetite for the move at this time.
The UK will continue to lose investment
A February study by the London School of Economics found that UK firms had already diverted more than $13 billion worth of investment to the EU because of Brexit. Foreign direct investment (FDI), while remaining strong compared to other countries since 2016, has also dipped significantly, resulting in an additional estimated $4.5 billion in lost investments. Most telling of all, major banks have already moved as much as $1 trillion in assets from the UK to the EU. This signals a loss of confidence by foreign investors, but much more critically, also British investors. The immediate result has been slowed growth, and every day of delay only exacerbates the problem further.
Businesses need growth solutions
According to the Bank of England, Brexit has already wiped out £40 billion in British economic growth since 2016. Businesses, for their part, need to be aware of these shifts in order to ensure their future growth in a changing economic reality. With a no-deal Brexit appearing more likely than ever, business owners need alternative financing solutions to help replace slowing investment.
Regardless of what happens in the coming weeks, UK businesses are currently left to grapple with a worst-case scenario. Just a week before Brexit, business owners still don’t know what kind of economy they will wake up to on March 30.