12 March 2018

Financial Times: Brexit to hit 5 sectors hardest, research shows

More than three-quarters of the impact of Brexit will fall on just five sectors in the EU and the UK, according to new research, and would disproportionately affect specific regions such as London in the UK and Bavaria in Germany.

The hardest hit sectors will be financial services, automotive, agriculture, food and drink, chemicals and plastics, says the study to be published on Monday by consultancy Oliver Wyman and the law firm Clifford Chance.

The two companies analysed data from businesses across the EU to estimate that the tariff and non-tariff costs of Brexit for exporters in the EU27 would be £31bn a year, and for UK exporters £27bn.

Kumar Iyer, partner at Oliver Wyman, said that while big exporters were checking the exposure of their suppliers to potential changes to trading arrangements, smaller companies further down supply chains were less prepared.

“We see the best prepared firms taking hedges now based on the direct impacts on themselves, their supply chains, customers and competitors,” he said. “Unfortunately, we see that small firms are least able to take these steps.”

Mr Iyer said small businesses would find it particularly challenging, especially when they had no experience of trading outside the EU.

The research found that two-thirds of UK and German companies traded exclusively within the bloc at present, which meant 65,000 companies had potentially untenable business models post-Brexit.

In Ireland, the agricultural sector’s exposure to UK consumers made it particularly vulnerable, while in Germany, four of the 16 states — Bavaria, North Rhine-Westphalia, Baden-Württemberg and Lower Saxony — would shoulder more than three-quarters of the impact on the country because of the importance of the automotive and manufacturing sectors in those regions.

Jessica Gladstone, partner at Clifford Chance, added: “Given the difficulty of knowing exactly what turbulence lies ahead, many businesses are putting Brexit in the ‘too hard’ box.”

The research also found that potential non-tariff barriers would have a much more significant effect on companies than tariffs. It calculated that if a future customs arrangement was in place between the UK and the bloc that was equivalent to the current customs union, the impact of Brexit on the EU27 would be reduced to £14bn and on the UK to £17bn. [...]

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