Accountants welcome Brexit transition deal but doubt grows over economy’s bottom line

Brexit Insights
By Rob Outram, CA Magazine

14 May 2018

Finance professionals have cautiously welcomed the provisional agreement on the UK’s exit from the European Union, announced in March. But there is deepening pessimism about the ultimate impact of Brexit.

These are among the findings of the latest Brexit Tracker survey commissioned by ICAS, in association with leading law firm Brodies LLP.

The Tracker is based on an online survey of CAs in early April, just after the provisional agreement was announced by London and Brussels, and ratified by the EU Council of Ministers.

Provisional agreement found helpful

Overall, 48% of respondents said the agreement was “helpful” or “very helpful” (43% said it was “unhelpful” or “very unhelpful”).

On specific elements of the agreement they were more positive (the figures in brackets represent the percentage describing the agreement as “helpful” or “very helpful”):

1.         The UK will be party to EU trade deals (81%)

2.         Rights will be retained for EU nationals arriving in UK up to end of the transition (79%)

3.         The UK will be able to negotiate its own trade deals up to end of the transition (75%)

4.         Rights will be retained for UK nationals arriving in EU up to end of the transition (76%)

5.         Appointment of a joint EU/UK committee to oversee transition issues (76%)

6.         Both parties pledge to act “in good faith” (72%)

7.         In the absence of an agreement on the Irish border issue, EU Single Market and Customs Union rules will apply to Northern Ireland (57%)

8.         The transitional period is set to end on 31 December 2020 (59%)

9.         The Common Fisheries Policy will apply to the UK up to the end of the transition (36%)

Note: The Irish border issue (7), ranks higher than the transitional period (8) because “very helpful” has been assigned a higher weight than “helpful”.

Brexit expectations changing

Over the last six months of negotiations, members’ preferences for the outcome have not changed drastically (just under 60% would still rather see the UK as a participant in the Single Market, while around 30% prefer a free trade deal).

The Brexit Tracker indicates declining confidence compared with 12 months ago.

Expectations, however, have changed over the period, with 41% now expecting the UK government will secure a free trade deal (Autumn 2017: 36%) and just 23% predicting that the UK will leave the EU with no free trade deal in place (Autumn 2017: 29%).

The Brexit Tracker indicates declining confidence, however, compared with 12 months ago. The headline numbers on the impact of Brexit (with +50 indicating a very positive outcome and -50 a very negative outcome) are, with Spring 2017 figures in brackets:

*           Impact on you and your organisation so far -10 (-6)

*           Expected impact post-Brexit, for you and your organisation -14 (-10)

*           Expected impact on the UK economy post-Brexit -18 (-11)

Slightly increased confidence that the UK government will achieve its stated objectives is not matched by confidence about what might happen to the economy after that.

Big business ramps up contingency planning

In terms of being ready for Brexit there appears to be some progress especially for larger organisations. Of the large organisations, 40% say they have considered location issues, 51% have reviewed supply chain issues and 61% have considered HR and regulatory issues.

Smaller organisations are less likely to have even started addressing these issues: 18% have considered location issues, 28% supply chain issues, 30% HR and 44% regulatory issues.

There are clearly many issues still for the UK and EU to deal with and the latest agreement is just one step on a long road.

Regarding economic predictions, 90% of respondents now expect to see interest rates rising (with 41% expecting to see the Bank of England rate reach 1.5% over the next two years); views remain mixed on sterling’s prospects; and slightly fewer (65% as opposed to 70% in the last survey) see inflation rising.

Christine O’Neill, Chairman of Brodies commented: “It is important to remember that the agreement is a ‘draft’ and the EU has been consistent in the refrain that ‘nothing is agreed until everything is agreed’.

“The agreement is not expected to be in its final form until the autumn of this year and a number of outstanding issues need to be resolved before a final text can be put to the UK Parliament, and to the European Parliament and Council, for ratification.”

Bruce Cartwright CA, ICAS Chief Executive commented: “There are clearly many issues still for the UK and EU to deal with and the latest agreement is just one step on a long road.

“ICAS will continue to be proactive during this process, using our expertise to help clarify the key issues and sharing our members’ views with policymakers.”

Just over 350 members completed the survey.

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