The United Kingdom has passed the point of no return. It has less than six months to reach a new trade deal with the European Union or risk heaping more pressure on companies that are already laying off tens of thousands of workers because of the coronavirus pandemic.
More than 100 companies, entrepreneurs and trade organizations have written to Boris Johnson, warning the prime minister that erecting barriers to doing business with the United Kingdom’s biggest trading partner would put even more people out of work and lower living standards.
The firms, many of which are in the manufacturing and chemicals sectors, have called for a new trade deal that matches current arrangements as closely as possible. Brexit took effect on January 31 but UK-EU trade has continued as if nothing changed thanks to a transition agreement. The deadline for the United Kingdom to ask the European Union to extend that transition beyond the end of this year expired on Tuesday.
“Businesses simply do not have time or capacity to prepare for big changes in trading rules by the end of the year — especially given that we are already grappling with the upheaval caused by coronavirus,” said the letter, which was shared with CNN Business. The decision not to extend the transition period is a “huge gamble,” they added.
The warning came within hours of two major employers saying they would slash a combined 6,700 jobs in the United Kingdom because of the coronavirus pandemic, which has pushed the country into its worst economic downturn in 300 years and triggered mass layoffs. UK companies in aviation and retail have cut over 10,000 jobs in just two days.
Signatories of the letter called for alignment with EU regulations in order to allow the free flow of products such as pharmaceutical, medical, and chemical supplies. A good deal is “the only way to avoid chemical supply chain disruption,” Peter Newport, CEO of the Chemical Business Association said in a statement.
The United Kingdom and European Union have made little progress in negotiations over their future relationship, and time is running out to prevent a rupture when transitional arrangements expire at the end of this year. On Wednesday, a UK government spokesperson told CNN Business that there is “no reason” why an agreement can’t be reached by the end of July.
“What we can’t have is a situation where this drags on into the autumn, where our businesses and people who want to trade don’t know what to prepare for,” the spokesperson said. “That’s why we welcome the fact that the EU have agreed an intensified timetable … to take the talks forward.”
The government has already backtracked on plans to impose full border checks on EU imports on January 1 in a bid to avoid choking off vital supplies and piling pain on British businesses.
Major companies in the United Kingdom have announced well over 80,000 job cuts because of the pandemic, with more expected when government support for salaries ends in October. Airbus (EADSF) and catering firm SSP are the latest to add to the total, while the BBC reports that Topshop owner Arcadia, menswear retailer TM Lewin and Harrods are also slashing jobs. The running list over the past two days includes:
- Airbus - 1,700 jobs
- Arcadia - 500 head office roles
- EasyJet - 2,017 pilots and cabin crew
- Harrods - up to 700 jobs
- TM Lewin - 600 jobs
- SSP - up to 5,000 jobs
SSP, which owns Upper Crust and other cafés in airports and train stations, said the slow pace of recovery in the United Kingdom necessitated the restructuring, which could make half its workforce redundant. Rail passenger numbers remain about 85% below their level a year ago and the UK air sector “has to date been largely closed,” SSP said.
Unemployment in the United Kingdom could soar to nearly 15% in the fourth quarter if there is a second coronavirus outbreak, according to the Organization for Economic Cooperation and Development. Even without a second outbreak, the jobless rate is expected to be nearly 10% at year end, the Paris-based agency said earlier this month.
Financial services hit a snag
It’s not just hospitality and travel companies that are at risk. The United Kingdom’s financial services sector, which employed 1.1 million people and contributed £132 billion ($164 billion) to the economy in 2018, is also headed for trouble.
Assessments to confirm that UK regulations will remain equivalent to those in the European Union, which would secure UK financial firms’ access to the bloc after this year, have not yet been finalized.
Chief EU Brexit negotiator Michel Barnier said Tuesday that UK proposals for the future relationship are “unacceptable,” and the country is seeking to keep the benefits of the single market without the obligations.
The United Kingdom “would like to make it easy to continue to run EU businesses from London, with minimal operations and staff on the continent,” Barnier said in an address to Eurofi, a think tank for financial services.
“I know that many hope our equivalence decisions will provide continuity,” he noted. “Many believe that ‘responsible politicians’ on both sides of the Channel should make this happen. But things have to change.”
Financial services accounted for more than a fifth of the United Kingdom’s services exports to the European Union in 2018, valued at £26 billion ($32 billion), according to the Office for National Statistics.
UK economy facing historic slump
The timing of the trade threat could not be worse.
Data from the British Chambers of Commerce on Wednesday showed that 20 of 28 key indicators across the country’s manufacturing and services sectors, including sales and cashflow, dropped to their lowest levels on record in the second quarter.
Forward-looking indicators, such as orders and investment intentions, also fell to record lows, dashing hopes of a swift economic recovery, according to the report, which surveyed 7,700 UK firms employing 580,000 people.
“Our results demonstrate the need for swift and substantial action. The government has one chance to jump-start the economy and business confidence over the coming weeks — and they must take it,” director general Adam Marshall said in a statement. “The UK cannot meander its way back to success in this era of uncertainty,” he added.
In a speech on Tuesday, Johnson promised to accelerate billions of pounds in spending on infrastructure projects, including new schools, hospital maintenance, roads and housing. He promised to “build, build, build” and reiterated a previous commitment to “level up” Britain with increased investment in regions outside London.
Labour Party leader Keir Starmer said on Twitter that Johnson’s “re-announcements of old pledges and commitments are simply not enough.” Britain needs a “Back to Work Budget with a focus on jobs, jobs, jobs,” he added.
Finance minister Rishi Sunak is expected to set out a plan to support the UK economy through the first phase of its recovery next week.
— Sharon Braithwaite and Eoin McSweeney contributed reporting.