The more time passes, the more likely it becomes that Brexit is impacted by other events. This week was a reminder that Brexit is not the only game in town and that wider global politics are increasingly volatile.
In the last week we have seen plans for the introduction of US steel tariffs and a potential trade war looming with China. Liam Fox’s statement to parliament on the UK Government’s approach to potential tariffs on UK exports of steel to the US demonstrated that the UK government is working closely with the EU and as part of the EU trading block on this. We may see retaliatory EU trade measures aimed at the US if exemptions are not secured for EU exports.
Retaliatory sanctions are also the order of the day with Russia this week. We have seen US sanctions for Russian hacking of energy infrastructure and electoral interference alongside the UK measures following the poisoning of the Skripals in Salisbury.
This could also indirectly influence the course of Brexit. On the one hand, as with US steel tariffs, the UK is seeking EU (as well as UN, US and NATO) support. This is arguably more difficult in a Brexit context but may also reinforce cooperation and highlight the benefits of closer relations with the EU.
On the other hand, Jeremy Corbyn’s rather equivocal position on Russian culpability may have more significant consequences for the outcome of Brexit and the UK business environment. Electorally it may make a Labour government a less likely prospect in the medium to long term; possibly reducing likelihood of a ‘hard left government leading a soft Brexit’. More immediately it may deter Conservative backbenchers from voting with Labour to inflict amendments on the Brexit Bill currently in Parliament. Conservative MPs may be more reluctant now to vote with Labour MPs on staying in a customs union. It was interesting to see Conservative soft Brexit rebels like Anna Soubry and Labour soft Brexit rebels like Chuka Umunna both criticise Corbyn’s ambiguity. It may be that the diplomatic channels that some politicians work hardest to maintain in light of the Skripal poisoning are relations between soft brexiteers in the Labour and Conservative parties.
In other news the Chancellor’s Spring Statement on Tuesday allocated £1.5 billion of additional spending to government departments to prepare for a ‘no deal’ Brexit, reinforcing the point that business should also plan for ‘no deal’ Brexit. The official Office of Budget Responsibility economic forecasts demonstrated that despite the Chancellor’s spin, economic forecasts remain gloomy for the UK: forecasts are little changed from November (0.1% increase in GDP growth forecast for 2018 as a result of more buoyant global markets; and slightly lower than forecast GDP growth in later years). Businesses should certainly plan for low growth in the U.K. but buoyant global economies which offer good trade prospects. The Spring statement also raised the possibility of increased public spending in the future as public finances looked in better shape. The Budget in November will be significant - and the chancellor may have room for a pre-election war chest should Brexit prompt an emergency election.
This week’s developments are further proof that we are seeing a wax and wane of the possibility of hard or soft Brexit. Both remain distinct possibilities. The options have yet to narrow, one year away from Brexit day. That means continuing uncertainty. And we can expect further volatility. Scenario planning is increasingly important and something I am doing more and more of with our clients.
I spend much of my time advising businesses on how to manage the uncertainty of Brexit. This week US trade tariffs and the breakdown of relations with Russia underline the fact that Brexit is not the only cause of uncertainty. In many areas, stability of trading systems is breaking down and volatility is becoming the new normal. Just as business can plan for Brexit so they can apply the same principles to wider global volatility - measure your exposure, identify risk and opportunity and develop a plan and keep under review. And develop agile decision making: organisations increasingly need to be able to take in information from a variety of external sources, assess impact and track trends, and take decisions quickly across their business.
In many areas, stability of trading systems is breaking down and volatility is becoming the new normal. Just as business can plan for Brexit so they can apply the same principles to wider global volatility - measure your exposure, identify risk and opportunity and develop a plan and keep under review