CIPS group CEO Gerry Walsh said the lack of clarity from Brussels is putting businesses on hold © Leo Wilkinson
CIPS group CEO Gerry Walsh said the lack of clarity from Brussels is putting businesses on hold © Leo Wilkinson

EU firms set to abandon British suppliers post Brexit

6 November 2017

A CIPS survey has found nearly two thirds of EU businesses expect to move some of their supply chains out of the UK because of Brexit. 

The survey of 1,118 supply chain managers in the UK and mainland Europe found that the number of EU firms planning to shift part of their supply chain out of Britain had risen from 44% in May to 63%.

It also found that 40% of UK businesses were taking similar steps and looking to replace EU suppliers with British ones, up from 31% in May.

The survey said the shift comes as Brexit negotiations appear to be deadlocked, with half of UK businesses saying they are becoming less confident that the UK and EU will secure a deal that offers “free and frictionless trade”.

Britain and the EU said last week that they were ready to speed up talks, but Gerry Walsh, CIPS group CEO, said it was already too late for the scores of UK businesses that look likely to be dropped by European customers.

“British businesses simply cannot put their suppliers and customers on hold while negotiators get their act together,” he said.

“While the TV cameras are fixed on Brussels, the deals which will determine the future prosperity of Britain and Europe are being struck behind closed doors in businesses large and small.

“The lack of clarity coming from both sides is already shaping the British economy of the future— and it does not fill businesses with confidence.”

The uncertainty has meant that 20% of UK businesses with EU suppliers surveyed found it difficult to secure contracts that run after March 2019. Even with formal separation some time away, nearly one in 10 UK businesses said their organisations have already lost contracts as result of the Brexit decision. 

Walsh added that the success of the negotiations in Brussels should not be only measured on the final deal but on how quickly both sides could provide certainty.

“The clock is ticking,” he said. 

David Lowe, partner at law firm Gowling WLG, said with limited progress on Brexit negotiations businesses were assuming the UK would exit the single market and customs union.

He said for anyone trading across the UK border, it would mean incurring costs— in the form of tariffs and non-tariff barriers— and hassle.

“That is good news for UK suppliers with UK customers but even with the devalued pound, this makes exporting to the EU challenging,” he said.

“Unless a UK supplier can show a compelling price advantage, EU customers will trend away from cost and disruption to non-UK suppliers.”

The survey, conducted in September and October, also found that a quarter of UK businesses with more than 250 employees had already spent at least £100,000 preparing their supply chain for the split.

It said the costs came in addition to daily impact of currency fluctuation, with 64% of businesses stating that it had made their supply chains more expensive to manage.

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