Following the completion of ‘Phase 1’ of Brexit negotiations, FTI Consulting conducted a wide-ranging survey of businesses in the UK, Germany, France and Spain. Questions were asked about what they thought would be the outcome of the Brexit negotiations, what impact this will have for them, and how they are preparing themselves. The findings will surprise many commentators on both sides of the Channel.
Optimism or complacency?
The headlines from our survey show that businesses across the continent are extremely optimistic about key growth indicators following the UK’s departure from the EU. Two-thirds of firms said that they expected to see turnover, employee numbers and client/customer numbers increase in the twelve months following Brexit – and only 11% said they expected to see any sort of decrease in these areas.
Remarkably, a majority of businesses in all four countries expected the UK to maintain tariff-free access to the Single Market, passporting rights for financial services, and the free movement of EU citizens. Respondents also told us that they expected to see absolute clarity on the UK’s future relationship with the EU very soon – with 75% of all firms saying they expected to get this clarity by June 2018. This is also when they would be making ‘irreversible’ decisions to manage the impact of Brexit – in fact, 21% of all firms said they had already made these decisions. Businesses were so positive that over a fifth of them said their activity to manage Brexit had actually slowed down in recent months.That will no doubt be music to the ears of those in favour of Brexit and raise eyebrows among commentators who have consistently made dire predictions about its consquences. So, are businesses right to be this optimistic or are they being too complacent about the impact Brexit may have?
Brexit: good or bad?
One of the first questions we asked in our survey was whether businesses thought that the UK leaving the EU would be ‘best’ for them, their country, their company and the EU more generally.
Overall, we found that British, German and French businesses thought that Brexit would be better than the UK remaining in the EU – albeit with slim majorities in some cases. When asked if Brexit was best for the EU economy, 54% of French and 53% of German said it would be – whereas there was a 50:50 spilt in the UK. This was more pronounced in specific sectors, with 62% of German financial services firms saying Brexit would be ‘best’ for the EU economy. Spanish firms were generally more pessimistic than their counterparts in Germany and France; 57% of Spanish professional services firms said that the UK remaining in the EU would be best for their company, whereas only 43% of French and 41% of German professional services firms agreed. What was most interesting to note is the change when it came to our respondents’ personal perspectives. When asked this question, individuals tended to be more in favour of Brexit than when they answered in relation to their business, their countries’ economy, or the EU economy. Significant majorities in all countries said, from a personal perspective, that it was best for the UK to leave the EU – at an average of 67%.
For a better understanding of where businesses think Brexit will have an impact on their growth, we asked companies to say how they think they will perform in the immediate aftermath of the UK’s departure from the EU. This included looking at projected turnover, employee numbers, and numbers of clients or customers. As already mentioned, large majorities across all four countries expected to see increases in these three factors during the twelve months following the UK’s exit.
Spanish businesses tended to be marginally less optimistic. Spanish manufacturing firms, in particular, scored the lowest for expected growth in every category. Nonetheless, between the three largest economies in the EU there is a remarkable level of optimism. In the UK, Germany and France, businesses expect to grow substantially in the year after the UK leaves the EU – as the chart below shows. The mean anticipated increase in turnover for UK firms stands at an astonishing 57%, equalled by Germany and at a similarly high 51% for French businesses. This pattern was more or less mirrored for the number of employees and the number of clients or customers.
Most striking of all was how our data seemed to run counter to some of the more dire predictions made by commentators. In a widely read report, the Bank of England suggested that 75,000 jobs could be lost in financial services in the UK as a result of Brexit – with 10,000 jobs being lost on ‘day one’. Our data shows that 12% of UK financial services firms expect to see a decrease in employee numbers following Brexit, with the mean decrease being about 8%. However, 72% of UK financial services firms expected to actually see an increase in employee numbers, at a mean increase of 56%. This figure would be extreme across the whole sector, given estimated employment in financial services in the UK is over 1 million. But, at the very least, it shows that many companies in the UK are planning to hire people following Brexit, rather than lose them.
Preparing for departure
No matter the impact, our survey found that the vast majority of businesses have established a Brexit response team or are in the process of doing so (83%).
These teams had an average size of seven people and meet on average over twice a week. In most cases this activity was greater in the UK, and financial services firms tended to more active than the other major sectors. In terms of what these teams actually do, we found that most of them were looking into regulatory issues, internal company structures, and financial implications. However, less than a quarter (24%) were considering engagement with policymakers to help influence the negotiations and 36% said they hadn’t yet used external services, such as trade associations or consultants.
Alongside this data, we also conducted a series of interviews with well-known businesses operating in the UK and in other EU countries, which provided us with examples of who participates in these Brexit teams and how they are structured. An example of one such team is provided above. This shows a central Brexit project team coordinating activity across multiple Working Groups, supplemented by input from other business teams, such as Legal. This is just one example and we found a wide variety of structures were in operation.
Find out more
Overall, these results could be seen as encouraging for those in favour of Brexit, as they reflect a general view that businesses are managing the issues more effectively than some commentators and media headlines seem to suggest. On the other hand, one could argue that our data reveals that companies are perhaps too complacent in their response to Brexit and, possibly, are expecting to see a ‘softer’ Brexit than the UK Government is willing to contemplate. Considering the fact that nobody can say with any certainty what will happen in the negotiations, there is a distinct possibility that these results will change over time. The UK’s chief negotiator, David Davis, wrote early in the New Year that the next round of negotiations will produce “thunder and lightning” and are likely to undergo a number of uncertain moments. What is more certain is that businesses across Europe will hope that the storm clouds will move on quickly and a period of stability will follow that further enhances their opportunities for growth.
If you want to find out more, a full report covering the findings of this survey can be found at https://fti.to/brexitreport