A six-month extension to the deadline for the UK’s departure from the European Union means a possible ‘no-deal’ Brexit – which could have happened today (12 April) – has been averted.
Prime minister Theresa May had been seeking a shorter Brexit extension to 30 June, arguing that the time is needed – while maintaining pressure on politicians – to secure a withdrawal ‘deal’ that can be agreed by lawmakers at the House of Commons in London.
Go deeper with GlobalData
However, the European Council on Wednesday (10 April) agreed to extend the Article 50 process and postpone the exit date of the United Kingdom from the European Union until 31 October – although this timeframe can be cut short if the UK government can get a withdrawal deal agreed by a majority of lawmakers in London.
However, uncertainty remains given that the UK Parliament has still not agreed on terms for leaving the EU, while ambiguity surrounding the country’s future status will continue to weigh on the economy.
This would likely be based on the existing proposed Withdrawal Agreement between the UK government and EU, which sets out the terms of the UK’s departure but requires ratification. So far it has been defeated in votes due to the combined force of opposed politicians seeking a ‘harder’ Brexit and those seeking a ‘softer’ one (for example, with a closer customs union commitment). If the UK has not ratified the Withdrawal Agreement by 22 May, and does not hold elections to the European Parliament, it must leave the EU on 1 June 2019.
A no-deal Brexit would mean reverting to WTO rules and more border checks as the UK would be immediately outside of the EU’s customs area and single market. However, under temporary plans set out by British government last month, the vast majority of apparel products would enter tariff free for a 12-month period. In contrast, the European Commission said it would apply Most-Favoured-Nation (MFN) tariff rates on UK imports in the event of a no-deal Brexit.
Groups representing British fashion and textile firms have repeatedly warned a no-deal Brexit should be avoided at all costs. And they say the ongoing levels of uncertainty have had a negative impact on the industry – especially as the UK’s departure date has already been pushed back from the original 29 March deadline.
The UK’s domestic political arguments will likely continue, although the prime minister has said she wants to reach a consensus in the House of Commons by talking to the opposition Labour Party. Those talks are continuing, but with little sign of a breakthrough.
The latest developments have been met with relief by the Confederation of British Industry (CBI), whose director-general, Carolyn Fairbairn, says: “This new extension means that an imminent economic crisis has been averted, but it needs to mark a fresh start. More of the same will just mean more chaos this autumn.
“Businesses will be adjusting their no deal plans, not cancelling them. For the good of jobs and communities across the country, all political leaders must use the time well. Sincere cross-party collaboration must happen now to end this crisis.”
Analysts at Moody’s Investors Service note that with this second extension to the Brexit process, both the UK and the EU have clearly indicated that they wish to avoid a damaging no-deal outcome.
However, “without immediate pressure for the UK Parliament to achieve consensus on the withdrawal terms, the willingness of UK politicians to agree a way forward may wane. There is still no proposal for Brexit that presently commands a parliamentary majority; and the current state of uncertainty will continue to have credit negative effects on the UK economy and companies across the business spectrum, holding back investment and spending. The onus remains on the UK Parliament to agree a way forward.”
