The chief of the International Monetary Fund has warned that there would be extension of uncertainty for business if there is a decision to extend the deadline of Brexit by the UK and the European Union.
While welcoming the fact that Brexit would not happen without a proper deal between the UK and the EU, Christine Lagarde, the IMF’s managing director, said however that nothing had been resolved.
Lagarde said that the decision to extend the divorce made available more time for political parties to discuss between themselves and for companies to get prepared for all eventualities surrounding Brexit.
“On the other hand, it is obvious it is continued uncertainty. And it does not resolve, other than by postponing what would have been a terrible outcome,” she said.
There was a risk of the UK being pushed into a recession for two years if Brexit happened without a deal, the IMF had warned earlier this week.
The UK government has been warned by the UK business leaders of not wasting the opportunity presented by the extension of Brexit. They also warned that there would be more damage on the UK economy if there is another deadlock in six months’ time.
Many of the smaller companies had put in resources to prepare for a spring Brexit and hence such companies “won’t survive” the delay, warned, Stephen Phipson, the chief executive of the manufacturing lobby group Make UK.
The need for stockpiling of goods in preparation of Brexit meant that money had to be borrowed by firms lower down the manufacturing supply chain. He said that some companies could suffer or even close down under the weight of the financing their lending for another six months.
“Some of these pressures they are under are unbearable … Some of [the smaller companies] are creaking under this working capital burden,” he said.
Orders from many EU customers would potentially be held back for longer which would mean that order books of companies would get emptied within weeks, Make UK also said.
Businesses said UK companies still faced significant risks despite the fact that Brexit had been delayed until 31 October at the emergency EU summit in Brussels early on Thursday.
“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,” said Carolyn Fairbairn, the director-general of the CBI.
She said that instead of cancelling their Brexit preparation plans altogether, companies now would only alter their worst-case no-deal Brexit plans.
If MPs fail to break the deadlock in Westminster, a renewed cliff-edge event for companies to prepare for on Halloween could be faced by the delay, opined some experts and analysts.
Domestic political uncertainty could be restarted because of the delay, said analysts and there is also an increased chance of another snap elections or a second referendum on Brexit, said analysts.
“It is not clear that the extension will change the entrenched positions of the government and of MPs. The risk is that a diminished sense of urgency leads to idleness in coming weeks and months,” said Silvia Dall’Angelo, senior economist at the City fund manager Hermes Investment Management.
(Adapted from TheGuardian.com)