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‘Flextension’ creates Brexit delay and uncertainty

Adam Jackson Adam Jackson

EU leaders and the UK government have agreed a ‘flextension’ to the Brexit process. 

To avert a no-deal Brexit on 12 April, EU leaders have agreed to delay the deadline for Brexit to 31 October 2019, with the possibility of an earlier exit if the UK parliament approves and ratifies the Withdrawal Agreement before then.

This this means the UK government has an additional period of six months to find a solution to Brexit.

If an agreement is reached, Parliament will still need to legally ratify the Withdrawal Agreement (including the Irish backstop) to avoid a no-deal scenario in the future. 

If the Withdrawal Agreement is ratified at any point during the extension period, it will come into immediate effect. The UK will leave the EU and the official transition period will begin. 

We still don't know what will happen next

No-deal Brexit is still possible.

If Parliament can't reach agreement during the extension period, the UK could still leave the EU on a no-deal basis on 31 October. Considering the way the process has gone so far, this remains a distinct possibility.

Uncertainty will continue for some time.

MPs have been unable to agree anything over the last five months and this deadlock in Parliament may continue. A second referendum or an election could be required to move forward.

Politics will become more volatile.

Whatever happens we face increased and ongoing political volatility, which will impact the business environment. The UK will be holding European Parliament elections on 23 May (unless a Withdrawal Agreement is ratified before then), which provides new and more extreme political parties with an opportunity to win seats. This may then carry over into the general election, which we can expect later this year.

These events will shape how Brexit develops and the direction of UK policy and priorities for international trade and relations, tax, regulation and public spending.

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What does this mean for business?

The new Brexit day is 31 October but the UK could leave the EU at any time before then if Parliament ratifies the Withdrawal Agreement.

The extension averts the immediate economic shock of a no-deal scenario but ushers in a period of continued uncertainty. We can expect a subdued UK economy and subdued investment. Over recent months we have seen an easing in new deal activity and, whilst ongoing M&A transactions are continuing to close, it is clear that some investment decisions are being postponed. We can expect ongoing uncertainty to continue this delay in investment. Consumer confidence may also be dampened. 

The labour market may continue to tighten as EU immigration continues to reduce and many people choose to stick with their current jobs. Some businesses in the supply chain may be distressed as no-deal stockpiling followed by subdued demand stretches cashflow. 

EU customers may use the extension period to review their own supply chain and consider alternative suppliers outside the UK.

What can businesses do during the extension?

Protect value: develop your Brexit resilience

  • Develop your Brexit contingency plan. If you don’t have one, use the time to create one. If you do have one, update it
  • Develop your no-deal contingency plan
  • Review the lessons learned from your initial Brexit planning
  • Maintain communications. During a period of uncertainty, communicating with your customers, employees, investors and supply chain is key.

Create value: look for opportunities

  • Identify ‘no regrets’ decisions that will help you in any Brexit outcome, such as strengthening your employee offer; improving logistics and customs processes to reduce delays at borders
  • Expand in international markets unaffected by Brexit
  • Develop new products and services that respond to customer needs
  • Identify M&A targets.

Transform value: build up your agility

  • Cut costs and streamline operations: how can you take 10% of cost out of your business?
  • Develop your ability to deploy people quickly to respond to new market conditions
  • Be prepared for wider political change. Scenario planning to consider a range of different global and UK political outcomes and the impact on your business operations and strategy won't be wasted
  • How can your governance and leadership team respond to events quickly? Scanning real time data and keeping strategy and plans under review will help.

In a time of widespread and intense uncertainty, we can help you assess risks, opportunities and ways of fostering agility. We can help you develop plans for these as well as implementing risk mitigation, operational change and transformation projects across your business.

For more information, please get in touch with Adam Jackson.

 

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