Brexit Deal Too Late to Stop Some EU Firms From Moving Business

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(Bloomberg) -- The U.K.’s transitional agreement to smooth its departure from the European Union is too late to stop some of Brexit’s fallout.

Nearly one in seven EU companies with U.K. suppliers have moved some of their business out of Britain, according to the Chartered Institute of Procurement & Supply. Almost a third of U.K. businesses with suppliers from the bloc have increased prices as a result of Britain’s 2016 vote to leave, the group said in a report published Tuesday.

While businesses welcomed the news Monday of a preliminary deal on a transitional agreement, some have been activating contingency plans to make sure they’re not caught out by Brexit. The transition will keep the country operating under current EU rules until the end of 2020 to give companies and the government time to prepare for Britain’s departure.

Nearly a quarter of U.K. businesses are planning to reduce their workforce to offset Brexit-related costs, according to the report, based on a survey of more than 2,000 supply-chain managers globally.

“Businesses have little choice but to pass on some of their rising costs to consumers in order to protect their profit margins and stay in business, as a result of the crippling cost of Brexit,” institute economist John Glen said in a statement. “Businesses that fail to plan ahead and use this opportunity to reduce costs in their supply chain may not survive.”

Moving Out

More than 1 in 10 EU companies have moved some of their employees out of the U.K. since the referendum and 22 percent of British businesses are having problems securing contracts with EU suppliers after the March 2019 leaving date, the report said.

Rolls-Royce Holdings Plc sent a survey to its suppliers in January to identify potential issues post-Brexit, according to a copy of a covering letter seen by Bloomberg News. The jet-engine maker, which confirmed the authenticity of the letter, said it was “important we understand the position of our suppliers in relation to key Brexit issues, their state of preparedness, and what is causing them concern.”

GlaxoSmithKline Plc, the U.K.’s biggest drugmaker, has estimated its Brexit-related costs might reach 70 million pounds ($98 million) over the next two to three years, along with subsequent, additional costs of roughly 50 million pounds a year.

The financial services sector has also been implementing contingency plans. Morgan Stanley is planning to boost its offices in three EU cities as it seeks to relocate London-based roles after Brexit. The U.S. bank has gone on a hiring drive in Frankfurt alongside peers Goldman Sachs Group Inc. and JPMorgan Chase & Co.

©2018 Bloomberg L.P.

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