After almost five long, often tense years of negotiations, the UK has formally signed a free trade agreement with the EU. The spectre of no deal and anxiety about spoiled loads sat at Dover and planes grounded at airports have abated considerably.
However, as with all agreements as complex and unprecedented as this one, the devil is in the (lack of) detail. Only now are we starting to see the industries and sectors set to lose out the most and some unintended consequences that are going to make it difficult for many companies to operate in the coming years:
With restricted access to the single market and the end of recognition of professional qualifications by the EU, the Architects market has been hit by a double whammy from the UK-EU Trade and Cooperation Agreement.
Rather than dealing with one homogenised bloc of countries as an EU member, UK Architects must now comply with the individual regulations of 26 different countries. Likewise, recognition of professional qualifications varies from state to state, all but blocking the ability to operate in some parts of the EU.
Leaders of both sides of the agreement have promised to address these issues to try and improve matters in the future. However, is the UK Architects market stable enough to absorb this disruption? Plimsoll’s current analysis shows a UK market that has existed on modest profit margins of just 2.3% regardless of pandemic disruption. With growth hovering around 3% in the latest period, the market looks set for some severe turbulence throughout 2021.
Over £1 trillion of assets have already been relocated from the UK to EU as the UK financial services sector lose their automatic passporting rights. With little provision in the agreement for the services sector, this key engine of the UK economy is set for an uncertain future.
EU regulatory equivalence and the demand for the sovereign power for the UK to be able to diverge from such regulations remain at odds with each other. Such is the power of London and the financial sector, could there be an understanding or informal agreement developed rather than a formal legal text? Failure to agree access to the EU market, particularly clearing markets, will see the City of London cast adrift from the market that its power has been built on for the past half a century.
The Financial Service market is a behemoth of the UK economy. Based on Plimsoll’s latest assessment of the sector, while growth was in marginal decline pre-pandemic at around 3%, profits across the sector soared to more than 11%. Clearly, such an important market will follow the money if access to the EU remains restricted.
If the UK government can find a way to balance sovereignty with EU regulations, the sector could thrive as an external hub. Otherwise, EU financial capitals such as Frankfurt and Paris as well as international centres such as New York, Singapore and increasingly Dubai could look to pick up the slack London would leave behind.
Food and Drink
The food and drink sectors are increasingly concerned about the new deal, especially the potential for high tariffs for goods that come into the UK and are then redistributed throughout the EU. Rules of origin regulations that come into effect for the UK because of Brexit, have rendered existing supply chains obsolete, potentially stripping the UK’s place as a distribution hub for the EU market.
Goods arriving in the UK as “zero tariff” that are then re-exported to the EU do not count as “UK-origin”. They will face the full EU common external tariff on returning to the EU. Food and agricultural products will be most affected and could attract extremely high tariff rates rendering the UK’s status a hub unviable.
Plimsoll’s latest assessments of markets throughout the sectors shows some UK markets are ill prepared to absorb additional costs and disruption. The meat import, drink import and food packing sectors already exists on wafer thin margins below 2%. Clearly, as supply chains become more fragile and markets close, companies could struggle to cope with the loss.
It is hoped that governments on both sides of the English Channel will find a way to smooth these processes and agreements. The problems are not unique to the UK and the pain will be felt by companies in the EU equivalent markets. Unless those agreements, understandings and legislations are in place, the sigh of relief felt just before Christmas at the announcement of the deal could be short-lived.
To find out how financially prepared companies are in the sectors that matter to you, visit www.plimsoll.co.uk today. Plimsoll provides intelligence on the companies best prepared to adapt to changes in the market, those in the most peril and where opportunities lie.