Boris Johnson becomes prime minister

On 24 July 2019 Boris Johnson became British prime minister, promising to take the country out of the European Union on 31 October, with or without a deal. He took office after Theresa May’s resignation and, with his arrival, the UK government adopted a firmer tone on the Brexit timetable and on the possibility of leaving without a pact with the Union. The arrival of a prime minister with such a defined position reduced ambiguity over the timetable, although it increased the risk of an abrupt outcome.

The promise put a specific date on the horizon of companies and citizens. Until then, uncertainty had revolved around successive postponements; from that moment, the debate became whether the date would hold and under what conditions. For anyone with business or interests between the United Kingdom and the EU, the difference is not small: a firm date forces a decision on how much preparation work is worth doing now.

A promise with a date

The new prime minister set a clear timetable: 31 October. A commitment with a date helps planning, but it also increases pressure on the negotiations and reduces room for postponements. When a political promise is formulated in such precise terms, it can be expected to generate reactions in Parliament, in the EU and in the business community.

The phrase ‘with or without a deal’ left open the possibility of an exit without a pact with the European Union, a scenario that had worried companies and governments because of its potential to cause sudden friction in trade, customs and services. Without an agreement, the shift from an integrated framework to one without specific rules can be very abrupt for anyone operating between the two sides. The shorter the deadline, the less room there is to adjust contracts, inventories and logistics routes, and the more important it is to have started earlier.

How it affects companies

With the date on the horizon, companies with operations between the United Kingdom and the EU had to think about the worst case: customs costs, changes in product rules, exchange rates and logistics delays. Each of those factors can affect prices, delivery times and margins, and their sum can be greater than each part on its own.

It was not certain to happen, but it could no longer be treated as a distant hypothesis. When an adverse scenario has a date, it stops being theoretical and becomes something to prepare for, even in the hope of not needing it. The experience of recent months also advised against trusting that everything would be settled at the last moment. That overall view makes it possible to decide more calmly which measures are indispensable and which can wait.

Preparing for the hard scenario

Preparing for an exit without a deal means reviewing contracts, talking to key customers and suppliers, assessing currency hedging and thinking about the cash needed. It is about knowing which customers depend on punctual deliveries, which suppliers are in the United Kingdom and what would happen to payments if the exchange rate moved sharply.

If it turns out not to be necessary, the effort will have helped put the business in order; if it is, it will have avoided improvising. In both cases, the company will know its exposure better and be in a better position to decide. An adviser can help set priorities, define which measures are proportionate to the weight of the relationship with the United Kingdom and schedule their execution with room to spare.

Preparing for the worst is not pessimism, it is management.

This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.