U.K. Companies Aren’t Preparing for Brexit Due to Virus, Institute Says

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Many U.K. companies are not preparing for Brexit because the coronavirus pandemic has depleted their cash reserves, according to a major institute.

Firms are unable to stockpile goods due to the financial damage from the virus. Added to that, they’re unwilling to pay further Brexit-related costs on top of those already incurred preparing for previous deadlines, according to the Chartered Institute of Procurement and Supply (CIPS), a global body with 70,000 members. That creates a challenge for prime minister Boris Johnson and Cabinet Office minister Michael Gove, who leads the government’s Brexit planning.

“Johnson and Gove have to persuade people that it’s really going to happen this time,” John Glen, an economist at CIPS, said by phone. “Companies have got the double whammy of Covid-19, while also stocking up for Christmas and potentially for Brexit.”

Businesses will err on the side of under-stocking going into the Christmas season due to cash-flow constraints, Glen said. That creates the risk of shortages should supplies to Britain be disrupted by the U.K.’s final split from the European Union at the end of this year. The prospect of reduced footfall in shops due to a winter lockdown is also limiting stock-buying.

Britain and the EU are still deadlocked in trade talks over a new economic relationship, with a deal needing to be agreed by October. Without an accord, the U.K. will do business with its largest trading partner on World Trade Organization terms, meaning tariffs and quotas on commerce, exacerbating the economic downturn caused by the virus. Firms also face a new red-tape burden even if there is a free-trade agreement, requiring customs paperwork and extra regulatory approvals to trade with the EU.

In a sign of the lack of readiness for Brexit, a survey of 502 supply chain managers by The Descartes Systems Group Inc., a seller of logistics software, showed that less than a quarter have confidence in their ability to handle the extra administrative demands of the split, and only 18% had prepared for a no-deal Brexit.

“Membership of the EU has masked the complexities of customs for many, many businesses,” said Pol Sweeney, vice-president of sales and business manager for the U.K. at Descartes. Organizations need “to act now to ensure the right systems, processes and skills are in place,” he said.

©2020 Bloomberg L.P.

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