European automobile manufacturers have called on the EU to take a softer stance regarding the UK’s future market access, and they warned that the bloc’s harsh position could have long-term effects on the automobile industry. In June, more than 50 European and British food and drink trade associations wrote to Brussels to request for more flexibility, underlying the fact that a tariff-free trade agreement needed to be coupled with the assurance that businesses will be able to benefit from it.

Why does the manufacturing sector worry?

For UK and EU importers and exporters, it is important to maintain a frictionless access to the single market. Manufacturing businesses are aware of the damaging effects of Brexit and the ensuing disruptions to their sector. Brexit-related uncertainty has made it very difficult for most sectors to prepare for a post-Brexit business environment and reduced the possibility of securing investment.

UK manufacturing is integrated into the EU single market, as almost half of all UK goods imports and exports are with the EU. Many UK manufacturers are dependent on frictionless trade with the EU so their supply chains are not interrupted. With the possibility of a no deal Brexit, manufacturing sectors are concerned about a potential lack of regulatory alignment with the EU as no business wants to lose the privilege of free trade.  According to independent research from the UK in a Changing Europe initiative, some sectors, such as automotive, could be severely affected if they have to pay tariffs to export cars to the EU in the absence of any agreement with the EU. As they warned, “In almost all cases, Brexit will create additional financial or other cost burdens for companies: tariffs, customs declarations, certification costs, audits to ensure rules of origin compliance, loss of collaboration opportunities in R&D, border delays, EU customers switching to other suppliers, visa costs for EU workers, and so on.”

Letter from the European Automobile Manufacturers’ Association (ACEA)

In a letter from the European Automobile Manufacturers’ Association (ACEA) last week, the association which represents  some of the biggest car manufacturers in the world, including BMW, Toyota and Fiat, warned Brussels that some aspects of the bloc's current stance are "not in the long-term interests of the EU automotive industry.” The ACEA urged the EU to "reconsider its position" on tariff-free trade. In its letter, sent last Thursday, 15th October, the ACEA requested from the EU to reduce the percentage of car components manufactured in Europe or Britain so that the businesses can benefit from any EU-UK trade deal. The car manufacturers are urging that the new rules be introduced slowly so that the automobile industry has the time to prepare and adjust for the new rules and environment. For EU manufacturers, an agreement that provides tariff-free, quota-free trade on all goods is crucial.

EU chief negotiator Michel Barnier has told businesses that “short-term adaptation costs” were necessary to protect “long-term economic interests.”

Nicolas Peter, BMW’s finance director, has said in a press conference last week: "The European Automobile Manufacturers Association (ACEA) has estimated that it could cost car manufacturers and suppliers from 10 to 11 billion euros, so we need tariff-free trade. And even then, it must be seamless. We have a just-in-time production system, so customs administrative processing must be efficient."

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After over three and a half years of talking, fighting, delays and fearmongering, Brexit is going to happen on 31st January.

This is a cause for celebration for some, but for others it represents the start of great uncertainty – or worse still – the start of decades of decline for the UK. This may come down to the deal that we agree, or if there is a deal at all.

Which way it goes will still be debated and argued over the years to come, but what will happen after 31st January when Brexit is confirmed?

The Brexit deal

Firstly, let’s take a look at the key points of the deal itself. Currently being examined by the House of Lords, the main issues involve travel, money, health, the rights of citizens and of course, trade. The policies set out in the deal will potentially affect currency which can then further impact such things as property prices.

The main focus of the deal is to leave the EU customs union, meaning that the UK will have the freedom to establish their own trade deals with countries around the world.

A significant sticking point was determining how Northern Ireland would be affected, with Boris Johnson eventually replacing the Irish backstop with a new agreement that will begin in December 2020, after the transition period has ended. In summary, this includes a customs declaration system for goods travelling from Great Britain to Northern Ireland, as well as continued access to the UK market for businesses. Northern Ireland also have the option to vote on their continued membership in this deal four years after the transition period.

Travel

After January 31st, travel plans for UK citizens travelling to EU countries will not be affected.

ABTA, the travel industry’s trade association has said: "If Parliament ratifies the Withdrawal Agreement before 31 January 2020, which it is on track to do, the UK will enter a transition period, meaning everything will remain the same and you can continue to travel as you do now until at least the end of December 2020."

After the transition, a visa similar to the American ESTA will be introduced, expecting to cost around £6 and last for a number of years.

All transport entering the EU, including ferries and cruise ships will not be affected but there may be an additional driving permit if you wish to use your own vehicle within your UK insurance policy in the EU.

Money

Savings are not expected to be affected after Brexit due to all bank trading agreements bought from EU firms being protected by the transition period. There may a short-term gain for savers if interest rates are increased when the Conservative Budget is announced next month.

However, British retirees living abroad may have their pension payments frozen, not benefiting from the EU payment increase, which is based on either inflation, wage increases or 2.5% - whichever is highest. On top of that, those living in the EU and being paid in GBP may lose earnings if the pound falls after Brexit.Property

With house prices showing an increase from November to December last year, estate agents are optimistic that Brexit will finally end the uncertainty that had led to prices stagnating – and falling in some areas - in the UK.

Even with renewed confidence, the February Budget could affect the market, with the potential for reforms for first-time buyers. No-deal is still a slight possibility, so foreign investors will be keeping a close eye on negotiations before parting with their money.

Most estate agents say that surveys have shown that potential buyers generally have overestimated the impact of Brexit so far, and with the political climate much calmer, expect buyers who were holding back to come forward in 2020.

Rental prices are forecasted to rise, due mainly to the lack of rental options on the market.

Currency

The value of the pound can go either way, with a lot of experts claiming the volatility of the past 3 years will calm and the pound will be more stable. Since the start of negotiations, the strength of the pound has been linked to a clean break that protected business, whereas the chaos of a no-deal Brexit has sent the pound down in value. Since the general election result, the pound has rallied due to investors being more comfortable with the prospect of a strong majority Conservative government.

However, with a lot to be done by the end of the transition period – including crucial trade agreements with the EU itself – there could still be choppy waters ahead for GBP. In fact, just this week it was revealed that there are fundamental disagreements between the EU and UK that will almost certainly require more than eight months of negotiations, which formally begin in March.

Trade negotiations

The obvious reason for any difficulties in the negotiations is that the EU believe that the UK should continue to follow some of the EU regulations in order to secure a free-trade agreement. This is mainly due to EU members, including France, asking for a level playing field to be maintained. Trade-offs will likely come into play as the transition period progresses, with a report recently claiming that the UK will allow EU fleets to fish in their waters if bankers and financiers are allowed favourable access to the EU financial markets. The issue with such trade-offs is that invariably they will affect certain demographics unfavourably, which can lead to more stand-offs. With such a tight deadline any significant delays could be disastrous and can bring the no-deal prospect back into the reckoning.

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Prime minister Boris Johnson wants to “get Brexit done,” but with Brexit the unresolved issue of the UK’s future trade relationship with the EU and other countries still remains and is expected to be one of the big concerns at the end of 2020.

If Brexit does happen, the UK will need to negotiate a free trade deal with the EU so it continues to enjoy tariff-free access to its market after the transition period, and will also need to negotiate and sign new trade deals with countries such as the US.

According to Johnson’s withdrawal agreement, the UK will continue trading with the existing terms until the end of the transition period which is due on 31 December 2020. He has already stated that, if he wins a majority, he will negotiate a Free Trade Agreement (FTA) with the EU which will come to replace the current arrangement at the end of 2020. The deadline for next year is considered among economists and politicians a very challenging one, as the time frame is limited and the subject matter demanding and complicated. As it is usually the case, trade negotiations take years, so it is similarly expected that Johnson’s trade agreement will be a difficult task, impossible to deliver as promised. Of course, it will be possible to extend the transition period, but this should be decided by 1 July.

As a Financial Times article notes, it is difficult to see the EU and the UK reaching a deal in as little as five months, especially when there’s legal and translation issues involved. A draft for an EU-Japan deal took four months and 10 days to prepare, “including ‘legal scrubbing’ and translation into 24 official EU languages — and this is viewed in Brussels as an example of the bloc moving at breakneck speed.”

In the case of Canada’s deal with the EU, this took more than five years to complete and another three before it came into force. For some, the UK-EU trade deal will be even more difficult as the two sides will attempt to establish a new relationship that seeks to replace an older one, while for others, the negotiation will be fast and quick as we are already in sync with EU regulations.

What is an FTA?

An FTA is a multinational trade agreement that creates a free-trade area between different states and determines the tariffs and duties on imports and exports in order to eliminate trade barriers, such as trade taxes or tariffs. While a customs union is more encompassing and requires all parties to have the same external tariffs, a free-trade agreement allows countries to establish whatever tariffs they wish, otherwise adopting a preferential treatment system.

If the EU and the UK are unable to reach a trade agreement within the specified time frame, then the UK will revert to World Trade Organization (WTO) terms – which means British exporters would have to face the same tariffs as other countries as the US or China. But even with a trade agreement, the privileges that are currently enjoyed under the customs union will be lost.  A trade agreement will mean more costs and more bureaucratic control for UK companies, which is why economists are warning that Brexit will damage the UK economy.

The UK is also in the process of rolling over the EU’s existing free trade deals with other countries in order to avoid losing tariff-free access to the EU after Brexit. The UK has signed 19 continuity deals with 49 countries. The UK’s biggest trading partners are the US and the UK, with the US being the UK's biggest single trading partner, and the EU accounting for 46% of UK exports. The problem with striking an FTA with the US is the obvious standards in food products, especially when in the US regulations are not as strict as in the EU, with the most obvious examples being genetically modified foods and chlorinated chicken.

At the moment, one of the most important Brexit outcomes is considered to be the resolution of a trade agreement with the EU by the end of next year, as the scenario of leaving without a trade deal will not only result in a political crisis for the government, but also an economic one for the whole of the UK.

Imports and exports

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Boris Johnson doesn’t like to give up easily, so his latest promise is that the UK will complete a free trade agreement with the EU by 31 December next year. As he has stated, if he wins the election in December, the UK will be able to strike a free-trade agreement within just 12 months.

Is this possible?

According to the Financial Times, “few trade experts believe this is possible.” The reason being is the difficulty of having an agreement ready in such a short time, especially considering Brexit happening in January, and a transition period lasting until 31 December 2020. If this is the case, the article argues, the UK and EU would need to have agreed on “a comprehensive trade agreement by the end of next year. If they haven't, the UK in effect falls out of the EU with no deal. Most trade experts say a free trade agreement can’t be concluded that quickly.”

For many Brexiters, the UK wants to complete a similar kind of agreement as the Canada plus one, which took seven years for the EU to conclude and which will need the approval of all 27 remaining EU states.

Managing director of Eurasia Group Mujtaba Rahman has confirmed the impossibility of agreeing any trade agreement between the UK and EU. Talking to the FT, he said: “Remember this will be a trade agreement unlike any before. Normally trade agreements are designed to promote economic convergence. This one will be about managing divergence. That’s much more complicated.” 

As the government is not open to extending the transition period beyond the start of 2021, Johnson will have to win the election with a majority, something that will again open the possibility of a no-deal Brexit.

A Canada style free-trade deal

Boris is not looking for a close economic partnership, but rather for a trade agreement similar to the so-called Canada plus agreement, that will define the UK’s future relationship with the EU. Canada’s trade agreement with the EU is considered one of the most ambitious ones and is officially called the Comprehensive Economic and Trade Agreement (CETA). IT was signed in 2016 and was enforced in September. However, it hasn’t been ratified yet by all the countries, a step that could take several years.

The specific Canada trade deal has helped increase exports to Canada with Canada’s Minister of International Trade Diversification Jim Carr stating that: "At the Port of Montreal alone, we have seen 20% more traffic in goods headed across the Atlantic. This enormous step in growth for Canada and the EU has been the reason why new shipping lanes have been added to accommodate container traffic."

According to the deal, 98% of all tariffs on goods traded between Canada and the EU are duty free, something however, that, does not mean no border controls. Additionally, when it comes to the financial services, CETA does not offer anything that is not already covered by World Trade Organization rules. There is no"passporting" rights that will allow Canadian financial companies to sell their services in EU member states. Finally, there will still be tariffs on some products and quotas on certain agricultural products.

Not Ideal for UK and EU exporters

A Canada plus-type agreement might enable the UK to leave the EU customs union and decide on its own tariff rates, but it won’t necessarily solve all the issues faced by UK and EU exporters. There will be costs and additional bureaucratic documentation that will be too complicated or costly for companies.

EU: Any future trade agreement will be “difficult”

The European Union's Brexit negotiator Michel Barnier talking on Tuesday at the Web Summit, in Lisbon, said that negotiations on a future trading relationship with Britain would be "difficult and demanding," as the EU "will not tolerate unfair competitive advantage." "The UK should not think that zero tariffs, zero quotas will be enough," and that time would be "extremely short" for negotiations. He added that the UK still faced the threat of a no-deal Brexit: “Even when the [Brexit] deal is ratified it will not be the end of the story ... We have to build a new partnership with the UK after they withdraw."

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UK manufacturing PMI beat expectations increasing to 48.3 in September and pushing the pound higher. However, the pound’s lift might be short lived as the data also indicated that signs of a recession are highly likely. Most importantly, UK factories are cutting jobs at the fastest pace in six years, despite companies stockpiling.

Brexit and ongoing economic uncertainty, the weak European economy and the trade war between the US and China are some of the key factors impacting on the UK manufacturing sector.

Manufacturing data in detail

The IHS Markit/CIPS UK Manufacturing and Purchasing Managers’ Index (PMI) showed that the UK manufacturing sector continued its downturn, albeit not as bad as the previous month. Stocks of purchases and input buying volumes rose as companies resumed their preparations for the latest Brexit deadline on 31 October. However, levels of output, new orders, new export business and employment fell further, compared to the previous month.

With companies experiencing a reduction in new orders, output was cut back, while the investment goods sector performed the weakest due to lower output and new business. Brexit affected capital expenditure as clients were reluctant to commit due to political uncertainties.

In September, the consumer goods sector rose, but both consumer goods and production sectors’ outlook was negative, with new work intakes decreasing.

Brexit uncertainty

Brexit uncertainty as well as clients redirecting supply chains away from the UK impacted on new export business. This along with the general decrease in manufacturing affected the labour market as companies reported redundancies and job losses across the consumer, intermediate and investment goods industries and at SMEs and bigger producers.

Brexit was also the motivation behind manufacturers’ increased purchasing and stockpiling. In this sense, optimism remained low as continued Brexit insecurities made any forecasting impossible.

Rob Dobson, Director at IHS Markit, confirmed that the “UK manufacturing downturn continued in September, adding to signs that the sector may be sliding into recession.” He also added that: “Some manufacturers noted increased inventory building activity in preparation for the forthcoming exit date, but the impact of such Brexit-related stock building was dwarfed by weakening demand for other customers, due in part to clients routing supply chains away from the UK.” For Dobson, “The shroud of uncertainty also weighed on manufacturers' confidence, which remained at one of its lowest ebbs in the survey history. These headwinds all ensure that manufacturing will likely remain a drag on UK economic growth during the months ahead.”

Duncan  Brock,  Group  Director  at  the  Chartered  Institute  of  Procurement & Supply, noted that “Businesses were less hopeful about the strength of the marketplace in generating manufacturing growth in the coming months as new orders continued to fall away, and business optimism remained at lower than average levels in all three sub-sectors.”  As a result, “European clients became more resigned and made concrete plans to move away from UK suppliers and business closer to home seemed more reliable. This exhausting set of conditions meant companies shed jobs at a rate not seen since 2013 as redundancy packages were prepared and new staffing plans abandoned.”

What’s to come

On Wednesday, Boris Johnson is expected to submit his proposals to an alternative to the Irish backstop, with political and financial analysts turning their attention back to Brexit. While impossible, any positive response from the EU might lift the pound a little bit higher.

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Trade Secretary Liz Truss said that countries outside the EU want Britain to “get on with” Brexit in order to begin striking free trade deals. This of course does not mean that Britain is in a desperate situation, as a Bloomberg article argues. In fact, London remains the epicentre of the financial world and Brexit just cannot simply erase London's “trading allure,” according to foreign-exchange market data.

Liz Truss on Tour

During her tour of Australia, New Zealand and Japan, Liz Truss said that senior figures she met in these countries expressed their desire to reach agreements with the UK very "quickly.” She said: "They just want us to get on with it. And what they care about is deepening our relationships with them. And also they want Britain to be at the table at the World Trade Organisation making the case for free trade."  

In the process of drawing a post-Brexit trade agreement with Japan, Truss argued that Brexit would be a positive thing, attracting new businesses to Britain and she called such businesses to express their views on what the deal should contain. Truss clarified that countries such as Japan, Australia, New Zealand and the US were considered "like-minded" countries with which the UK can begin striking its trade deals after Brexit. She said: that these are “all countries who are like minded, they're democracies, they believe in free enterprise and free trade, and we want to work with them to promote those ideas across the world." This is important for Britain in order to reach bilateral trade agreements in areas such as financial services, artificial intelligence and technology.

In regards to foreign leaders’ "massive enthusiasm" to strike trade deals with the UK, Truss said: "In Australia, from the Prime Minister downwards, everybody in the government is very, very keen to move forward with the deal with the UK, and restore some of those historic ties, which may have been diminished while we were part of the EU. The way I see it is that Australia and New Zealand are old friends ... with which we've got new opportunities." She continued: "There is a real enthusiasm for getting on with it. I heard that today from ministers in Japan. They want the deal done as quickly as possible. And I heard it in New Zealand and Australia as well." 

Delivering Brexit

She noted that ministers needed to resurrect the public’s lost trust in delivering Brexit on time despite previous delays. Truss warned that voting alongside Jeremy Corbyn was "hugely problematic" and that Tory MPs needed to be "backing the prime minister to the hilt."

Truss urged that now is the time that "we need to be looking forward and looking at the opportunities of Brexit. I think there's too much navel gazing going on at the moment about what's happened in the past. The whole point of Brexit is taking control over any rules and regulations, being able to strike free trade deal for the first time in 45 years. There's a huge world out there, which is incredibly enthusiastic about that potential and possibility. And that's what we will move on to."  

She underlined that, "We simply need to deliver Brexit. And the Prime Minister is being very clear. He won't be seeking extension, we are going to leave the European on the 31st of October. And that takes the wind out the Brexit Party sails."  

London remains the “epicentre” of the financial world

For Truss, getting on with Brexit cannot be disastrous, and this is also supported by a recent article by Bloomberg columnist John Authers. According to Authers, Brexit cannot diminish London’s appeal as a global financial centre. As he writes, “The foreign exchange market remains by far the world’s largest and deepest. It is where the world’s financial imbalances are resolved. And London’s grip on that market remains stronger than ever. Amazingly, given that London’s access to the EU’s financial markets will be weakened under virtually any version of Brexit, its hold over foreign exchange trading has only tightened in the three years since the referendum.”

While many banks and investors might have arranged to move part of their operations to Paris or Frankfurt, the truth is that they have not yet done so. Authers points out to the latest findings of the Bank of International Settlements’ triennial survey of the foreign exchange and interest rate derivatives markets, published last week, and which shows the market shares of the U.K and the U.S., of all foreign exchange trading.

As the survey shows, London hasn’t lost its appeal, and this is due to certain advantages. It is, in fact, that London’s natural trading day “overlaps at least a little with the main markets in Asia and the U.S.,” as well as the use of the English language, and mainly the “huge pool of FX-knowledgeable talent,” that continue to give it an advantage. As Authers admits, against his own beliefs, is that the survey surprisingly proves that the Brexit vote has not yet caused “irreparable damage to the City of London.”

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With Britain’s future trade relationships in question, and a no-deal Brexit looming on the horizon, the government has been preparing for post-Brexit agreements in an attempt to minimise the effects of Brexit.

New Zealand and Britain trade deal

On Monday, Britain’s Trade Minister Liz Truss said that striking a trade deal with New Zealand would be a priority, as officials are working to create continuity and support their non-EU trading partners. Truss, is on a three-nation tour, which includes New Zealand, Australia and Japan, a trip that hopes to pave the way for trade negotiations after Brexit. Ahead of her trip, Truss said: “We’re going to be leaving the European Union on October 31 with or without a deal and as part of that agenda, striking trade deals much more broadly than we have been doing is going to be vitally important. Striking a free trade deal with New Zealand is a very important priority for the UK. It’s one of the first trade deals we expect to strike.”

Official data shows that trade between New Zealand and Britain is at about NZ$6 billion (£3.1 billion), with New Zealand being Britain’s 43rd largest trading partner in 2017.

New Zealand’s Trade and Export Growth Minister David Parker said that he wanted to find a way that will retain the existing advantages of New Zealand traders despite Brexit. Parker said that among the subjects discussed, were finding ways to cooperate such as Britain’s potential accession to the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP).

Businesses preparing for Brexit

If the UK leaves the EU without a withdrawal agreement, it will be treated as a non-EU country. For this reason, it is significant that businesses in the EU prepare for this eventuality, if they have not already done so. Businesses that sell to, buy from, or move through the UK, goods, supplies or services will be affected.

Customs duties and restrictions

Without a transitional period, the UK will revert to the WTO rules. This will mean “declarations will have to be lodged and customs authorities may require guarantees for potential or existing customs debts; Customs duties will apply to goods entering the EU from the United Kingdom, without preferences. Prohibitions or restrictions may also apply to some goods entering the EU from the United Kingdom, which means that import or export licences might be required.”  No longer valid will be UK import and export licences, UK authorisations for customs simplifications or procedures and Authorised Economic Operator (AEO) authorisations. There will be VAT charges for imports of goods entering the EU from the UK, while exports to the UK will be exempt from VAT. Additionally many rules regarding declaration and payment of VAT will change.

It won’t be easy to move goods to the UK, as that it will require an export declaration. Movement of excise goods from the United Kingdom to the EU will have to go through customs before a movement under Excise Movement and Control System(EMCS) can commence.

UK businesses

UK businesses then that export, import or move goods and services through the UK will need to prepare by completing relevant documents so that the transition to post-Brexit Britain is as smooth as possible.

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With a no-deal Brexit most likely happening in a couple of months, experts have warned about how unprepared many trading companies are.  Service industries, such as finance make up 79% of the British economy and account for 45% of UK exports. A no-deal Brexit means that these service providers would lose access to European markets and might have to comply to new rules and regulations. According to Bloomberg Economics, in a “more benign no-deal scenario growth will probably slow sharply, while a more disruptive outcome would make a recession highly likely.”

The prime minister Boris Johnson has pledged to leave the EU by 31 October with or without a deal. Without a withdrawal agreement in place, the UK will crash out of the EU, lose its access to the single market and revert to the World Trade Organization (WTO) rules, having to deal with complicated restrictions and tariffs on exports. For many economists and business organisations, a no-deal Brexit will simply be disastrous for the economy.

Trading post-Brexit

While the UK has enjoyed tariff-free trade, after Brexit the UK will have to pay tariffs on UK goods and services. The change will hurt the UK economy, cause delays and increase costs and controls. Particularly, many financial companies are planning to move part of their operations to Europe to counteract the loss of access to their EU “passporting” rights and secure the smooth trading of goods and services with the rest of the world.

Similarly, UK prices will increase for EU imports such as food and cars. Cars will get a 10% tariff, clothes and linen a 12% tariff, while the UK will impose import quotas on beef, lamb, fish, poultry and swine.

The Bank of England has warned that Britain has one in three chance to plunge into a recession the beginning of the next year, as uncertainty over Brexit continues to affect the economy. In this climate, British businesses are stockpiling goods or plan to do so, as a hard Brexit will create problems at ports and hurt supply chains.  

Trading companies not prepared for Brexit

Carol Lynch, partner in Customs and International trade with the accountancy group BDO, said that only half of importers and exporters have signed up for the basic trading requirement. She said: "When we are looking at client reviews in terms of planning, the first question - particularly for vendors and suppliers - is have you got an EORI number. If you haven't, that's a very good indication that you haven't given any thought to future planning, deferred planning, tariffs, haulier preparations. The EORI is the very basic requirement.” For her, both imports and exports will be seriously affected by trade barriers. Lynch clarified: "Imports are especially important for consumers and manufacturers. Goods purchased from the UK and 80% of goods coming from Europe and outside of Europe come through the UK. It's critical and we'd be working with hauliers in making sure drivers are prepared and the right paper work has been handed in. Whatever chance you have of not being delayed is based on your preparations, that you know how to complete import declaration, that it's cleared and that you have that clearance slip in the cab so the driver knows what to do when they drive off the boat. There are a number of steps to ensure you can minimise the risk of delays which are, to a certain extent, inevitable.”

According to the Financial Times, France is already preparing for a no-deal Brexit by planning to trial an electronic customs system. The trial of the electronic customs system will commence in mid-September in Calais, ahead of a possible no-deal Brexit on 31 October. French minister in charge of customs Gérald Darmanin told French radio station RTL: “For a month, we’re going to pretend there is Brexit. For a lot of companies, we are going to have a sort of dress rehearsal so that we are ready at the end of October.”

If you are an importer or exporter, you must have experienced the general pessimism and uncertainty surrounding Brexit, while you might have been affected by the weak pound. If you want to protect your business and financial transfers, contact Universal Partners FX. UPFX will offer valuable support and assistance when transferring money internationally while tailoring hedging strategies to your business’ needs. Give them a call today and find out how much you can save on your international money transfers.

 

Exchange rates are the price of foreign currency that an amount of one currency can buy e.g. one-pound sterling. An increase in the value of the sterling means one pound can buy an increased amount of foreign currency, meaning you are getting more for the same amount of money. Businesses that import and export goods need to pay close attention to these exchange rates as the value of goods are highly sensitive, chopping and changing with the constant fluctuations. Businesses that trade domestically must also be aware of changes in exchange rates as they will have an indirect impact by virtue of the wider economy. So, how exactly do exchange rates affect a business? We will look at some examples below and click here to see how your business can stay protected.

 

Selling overseas

If you run a business that sells products or services to a country abroad, then a change in the exchange rate will have a direct impact on your bottom line. The force of the impact will be dependent on how invoices are issued. If invoices are submitted in the foreign currency, a risk remains where you will receive less money than expected if the exchange rate moves against you from the time the invoice as issued and date of payment. Issuing invoices in your local currency should have a lesser impact, as the overseas buyer must change their local currency into yours to make payment. You'll receive the full invoice amount regardless of where the exchange rate sits. The potential risk here is that your prices may become uncompetitive as a result of variations to the exchange rate, leading to lost market share against foreign competitors who do not have to include transactional exchange rate changes. 

 

Buying overseas

As with selling overseas, if your business contracts with a supplier from a foreign country, you become vulnerable to fluctuations in the exchange rate. For example, if you purchase goods from a supplier in China and payment of 300,000 Chinese Yuan for your next shipment is due in a month's time with an exchange rate of 8.74, your invoice would sit at £34,330.83 if paid today. However, in a month's time when the payment is due if the exchange rate has moved to 8.8, your invoice would change to £34,090.90, meaning you're paying £239.93 less for the same shipment of goods. Of course, if the exchange rate was to go the other way, you would have to pay more for the same amount of goods. Some businesses put forward contracts that fix exchange rates for a set period in place to help reduce the risk to the business.

 

Indirect impact

Changes in the exchange rate can also indirectly impact your business, even when you do not buy or sell goods and services overseas. For example, if you transport products around the country using delivery trucks and the cost of fuel is raised due to changes in the exchange rate, you will end up paying more for your shipments to be delivered. Exchange rate volatility can also have an effect on competition. Depreciation of your local currency makes the cost of importing goods more expensive, which could lead to a decreased volume of imports. Domestic companies should benefit from this as a result of increased sales, profits and jobs.

 

Universal Partners FX are an FCA regulated foreign exchange service, offering a range of products that can help protect your business. We are listed by the UK Government's Crown Commercial Service as a recommended FX provider, so if your business is in need of professional and expert advice for dealing with exchange rates, then please do not hesitate to contact one of our foreign exchange experts today. Alternatively, visit our business foreign exchange page to learn more about how we can help you.

 

Sterling has suffered after Boris Johnson’s no-deal Brexit rhetoric caused reaction among economists and cabinet ministers who continue to warn against it.

A free trade agreement after no-deal Brexit

Johnson’s government and figures in his cabinet, such as Dominic Raab, said that the UK would be in an advantageous position to negotiate a good deal after no-deal Brexit. European Union officials rejected Raab’s claim that agreeing on a free-trade deal after a no-deal Brexit would be “much easier.” A senior EU diplomat expressed the EU’s fears that a no-deal Brexit would trigger the destruction of political relationships and a rhetoric of blaming.

He said: “It would mean the complete breakdown of political relations and I don’t think there would be much trust on the EU side with the Tories, or with the prime minister. Eventually we would get around it because we are pragmatic, but this would be really, really bad, because of all the rhetoric around blaming.”

For another diplomat, after a no-deal Brexit, contact between the EU and the UK would break down: “Our phones will not be connected at that time … I don’t think they will be connected to someone who has reneged on their obligations.”

For the European officials, the most important element is to honour the three basic principles of the withdrawal agreement: citizens’ rights, the Irish border and the financial settlement.

Despite Johnson’s claims to the opposite, renegotiating a trade deal would be a lengthy and arduous process, something almost impossible. As Tanja Fajon, the Social Democrat member of the European parliament’s foreign affairs committee, said, renegotiating “a free trade agreement usually takes years and I believe the UK doesn’t have that time after a no-deal Brexit.”

In addition, Johnson’s character, his threatening attitude towards the EU, make him an unlikeable character according to the MEP, allied to the Labour party: “Who would want to do business with [Johnson] if he is serious with his threats not to pay €60bn (£54bn) debts to the EU? Who wants to deal with the country who doesn’t pay its bills?”

EU hoping for soft Brexit Tories to stop no-deal Brexit

 

Speaking on BBC Radio 4’s Today programme, Raab said that it would be easier to deal with the Irish border through a free-trade agreement after the UK is released from the EU’s “demands and unilateral dictates.”

Over the weekend, it was rumoured that Johnson was “turbo-charging” preparations for no deal, while his strategist for a no-deal Brexit, Michael Gove, said the government was preparing for leaving without a deal.

 

But the EU is reluctant to reopen the deal that was agreed with Theresa May, hoping that certain Tories would try and prevent the hardcore Brexiteers from crashing out of the EU without a deal. The EU would seek to defend its own interests, a spokesman of the European commission said, as Johnson’s ministers continue supporting their no-deal Brexit plans.

He said: “The UK preparedness is not for us to deal with. Our no-deal preparedness protects the EU and our interests in the case of a no-deal Brexit. A no-deal scenario is not our preferred outcome.”

Universal Partners FX and hedging strategies against volatility

Whether you are an importer or exporter, or you conduct your business abroad through regular transfers of funds, the recent no-deal Brexit rhetoric has definitely affected your finances as the pound has sunk against the US dollar and the euro.

While the government would ideally want to avoid a no-deal outcome, leaving without a deal is increasingly becoming a very likely prospect, something that is worrying both investors and ministers.

If you want to hedge your funds and avoid currency volatility, get in touch with UPFX and find out how they can hep you navigate around political and financial uncertainty.