How a $1.4 Million Contract Loss Shows No-Deal Brexit Cost

(Bloomberg) -- Want to know how no-deal Brexit fears are already hurting the U.K.?

Just ask Martin McVicar, who runs Combilift, which produces about 6,000 forklift trucks annually in Ireland for export. Up until this year, he imported seats costing about 200 euros ($232) apiece from a Welsh factory. Now, he’s switched the 1.2 million-euro contract to a German manufacturer, fearing a hard Brexit will hit his existing supply chain.

How a $1.4 Million Contract Loss Shows No-Deal Brexit Cost

“Brexit’s the driver -- we wouldn’t have changed otherwise,” McVicar said, sitting in Combilift’s gleaming factory in Monaghan, about 10 miles from the border with Northern Ireland. “We’re not growing our supply chain in the U.K., we’re curtailing it until we see clarity.”

McVicar’s decision is a microcosm of the pain already inflicted on the economy by Brexit, much of which is linked to uncertainty about what kind of deal the U.K. will secure with the European Union when it leaves the bloc in March. The Brexit vote has already cost Britain more than 2 percent of economic output, according to analysis by UBS Group AG, published Monday.

Bank of England Governor Mark Carney has said Brexit is the “overwhelming issue” for most companies and it’s holding back investment. While the U.K. economy bounced back in the second quarter from a turgid start to the year, growth remains below its average in the three years before the 2016 referendum.

How a $1.4 Million Contract Loss Shows No-Deal Brexit Cost

Last month, Gene Murtagh, chief executive officer of Irish insulation maker Kingspan Plc, said he sensed a “general nervousness in the U.K.” with many projects on hold because of uncertainty. He said building projects for companies exposed to Brexit have stalled.

“Bankers aren’t building banks,” Murtagh said in an interview. Though construction hasn’t “fallen off a cliff, it’s reasonably subdued.”

On Tuesday, Dublin-based Dalata Hotel Group Plc, which draws about a fifth of its revenue from the U.K., said trading there has been “mixed,” with Chief Executive Officer Pat McCann linking some of the weakness to uncertainty around Brexit.

How a $1.4 Million Contract Loss Shows No-Deal Brexit Cost

Combilift also illustrate a second Brexit negative for the U.K. -- higher prices. The company gets a quarter of its sales in Britain, and in January McVicar raised prices there by 4.5 percent, to help offset the decline of about 15 percent in sterling since the Brexit vote.

If Britain exits the EU with no deal, he’s looking at lifting prices again by the same amount, this time to cover the tariffs that would apply to forklift trucks under World Trade Organization rules.

How a $1.4 Million Contract Loss Shows No-Deal Brexit Cost

“We couldn’t eat that into our margin, it would have to be passed on to customers,” he said. “There’s no winners in that.”

If a trade deal is struck, McVicar hopes Combilift can return to growing its U.K. links, and is convinced Britain will remain a big customer.

“We’re still confident even with a hard Brexit, customers in U.K. are still going need forklift trucks,” he said.

©2018 Bloomberg L.P.