31 May 2018

ICAS: Pessimism over Brexit's impact is deepening

Finance professionals have cautiously welcomed the provisional agreement on the UK’s exit from the European Union, announced in March, but pessimism over the ultimate impact of Brexit is deepening, according to the latest ICAS Brexit Tracker survey.

What did CAs think?

Overall, 48% felt the March agreement was “quite helpful” or “very helpful”, as opposed to 43% who said it was “very unhelpful” or “quite unhelpful”. There was not a significant difference between the views of CAs in large and small firms, in this regard.

On specific elements in the agreement, however, respondents were more positive. The top three (weighted) aspects, in descending order, were:

1. the UK will continue to be party to EU trade deals during the transition;
2. rights for EU nationals arriving in the UK up to the end of the transition will be the same as those arriving pre-Brexit; and
3. the UK will be able to start negotiating its own trade deals during the transition.

The least popular aspect was the agreement that the Common Fisheries Policy will apply to UK waters during the transition. This was the only issue which a majority felt was “unhelpful” and it had received a large amount of negative coverage in the media prior to the Tracker survey.

Over the last six months of negotiations, members’ preferences for the outcome have not changed drastically. Just fewer than 60% would still rather see the UK as a participant in the Single Market, while around 30% prefer a free-trade deal.

Expectations, however, have changed over the period, with 41% now believing the UK government will get its free-trade deal (autumn 2017: 36%) and 23% predicting that the UK will exit the transition agreement with no free-trade deal in place (autumn 2017: 29%). That marks a big step forward from spring 2017, when 41% of respondents expected that the UK would be leaving the EU and Single Market without a free-trade deal in place.

The Brexit Tracker indicates declining confidence, however, compared with the winter 2017/18 poll. The Tracker charts optimism/pessimism on a 100-point sliding scale, with 50 indicating “very optimistic” and -50 indicating “very pessimistic”. The perceived impact so far has fallen from -8 to -10, and the expected impact post-Brexit for the UK economy has fallen from -15 to -18. Pessimism over the expected impact on the respondent’s own organisation has abated slightly, up to -14 from -15.

So, slightly increased confidence that the UK Government will achieve its stated objectives does not appear matched by confidence about what might happen to the economy after that.

This time round we distinguished between expectations for the period after Brexit but before the end of the transition period, and expectations about what will happen after the end of the transition.

For all respondents, optimism/pessimism for the transition was rated at -11, indicating that most see little difference between life in the transition period and the current environment. That is probably not surprising, given that during this period the Single Market, the Customs Union and the “Four Freedoms” (including freedom of movement for the labour force) will continue to apply to the UK, even after the UK has withdrawn from the EU’s governing institutions.

40% of large organisations, 40% say they have considered location issues, 51% have reviewed supply chain issues and 61% have considered HR and regulatory issues.

Drilling down into the different groups of respondents, there is a marked difference between those in large (250 employees and above) and small organisations (including small practitioners). For example, respondents in large organisations rated “impact so far” as -14 (small: -7) and “impact post-transition” as -18 (small: -11). One would expect that smaller organisations, with less exposure to an international marketplace, would be less concerned about any post-Brexit trade barriers. [...]

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