LONDON (AFP) – British businesses breathed a sigh of relief after the Cabinet on Wednesday (Nov 14) gave its backing to a draft Brexit deal that still faces numerous hurdles in Brussels and London.
The pound rose to around US$1.3016 after Prime Minister Theresa May announced she had received the backing of her ministers, compared to US$1.2977 at close of trading on Tuesday.
The Confederation of British Industry, the main business lobby group, hailed the agreement as “progress” in a statement.
“It moves the UK one step away from the nightmare precipice of no deal and the harm it would cause to communities across the country,” CBI chief Carolyn Fairbairn said.
She pointed out that the draft agreement secured a transition deal until the end of 2020 – a “top priority” for businesses.
UK Finance, the trade association for Britain’s powerful financial sector, also said the agreement was “an important step forward in avoiding a damaging and disorderly exit”.
“However, the hard work needs to continue,” Stephen Jones, chief executive of UK Finance, said in a statement, cautioning that the finance industry would “continue planning to minimise any disruption from a no deal scenario”.
A City of London senior official recently told AFP that only a few thousand City jobs would be lost to the European continent owing to Brexit – a tiny fraction of the 800,000 people working across the capital’s banking, insurance, asset management, legal and consulting sectors.
Nevertheless, top international banks like HSBC, Goldman Sachs and UBS are set to move several hundred jobs to other hubs like Frankfurt and Paris.
Other financial groups are establishing bases outside of London to retain so-called passport rights that allow them to operate across the bloc.
The Brexit agreement still has to be approved by EU leaders and go before the British parliament, as well as be ratified by the European Parliament and other national legislatures.
If finalised, finance minister Philip Hammond has said he expects a “Brexit dividend” for the economy from the deal as companies have been holding back investment.
The British economy is projected to grow at one of the slowest rates in the Group of 20 group of leading world powers this year but has held up relatively well since the 2016 referendum.
Strong exports and solid household spending pushed growth to its highest pace in nearly two years in the third quarter of this year, offsetting slumping business investment.
Gross domestic product climbed 0.6 per cent in the third quarter, in line with analysts’ expectations and up on growth of 0.4 per cent in the second quarter, the Office for National Statistics (ONS) said in an initial estimate.
Analysts are, however, expecting the economy to cool ahead of Britain’s departure from the European Union in March.
The International Monetary Fund on Wednesday said leaving the EU with no deal would cost Britain up to 7.8 per cent of gross domestic product – roughly four years of economic growth.
Several companies have already announced Brexit-related job cuts, office moves and contingency plans in case of no-deal.
Premier Foods, which produces iconic British brands such as Mr Kipling cakes, Oxo and Bisto, said on Tuesday that it was planning to start “building stocks of raw materials to protect the company against the risk of delays at ports”.
Some sectors, such as automakers reliant on just-in-time supply chains, have been particularly concerned.
The Society of Motor Manufacturers and Traders (SMMT) has previously blamed Brexit uncertainty for plunging UK investment by largely foreign-owned carmakers.
Japan’s Toyota and Germany’s BMW warned of temporarily halting UK-based production in the event of a no-deal Brexit, while the Indian-owned Jaguar Land Rover indicated it could reduce spending.
Britain’s car sector is deeply integrated because 70 percent of UK-registered cars are manufactured elsewhere in Europe, while the nation’s car factories export in excess of 40 percent of output to the region.
German car parts maker Schaeffler last week said it planned to shut two UK sites, citing Brexit as one of the reasons for axing up to a reported 500 jobs.
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