The Brexit Newsletter: 18 April edition

18 April, 2019

With Article 50 being extended to 31 October, what are the headlines dominating the news?

  • Jean-Claude Juncker warns that solution to breaking Brexit impasse must come from London
  • Donald Tusk implores UK and EU not to give up on finding a Brexit solution
  • Brexit leaves businesses with uncertainty costs
Two businessmen interacting with a tablet in a brightly-lit room.

Business insights

PwC Ireland believes that it is prudent for companies to continue to plan for a hard (no-deal) exit. It continues to be a risk despite the European Council granting the UK an extension to Article 50 until 31 October.

While it is good news that the UK did not leave the EU without a deal on 12 April, there is still no certainty as to the final shape and timing of Brexit. No deal remains a risk until withdrawal from the EU is formally agreed.

While we hope that a positive outcome can be agreed before 31 October, the political uncertainties at Westminster mean that the possibility of no deal cannot be completely removed.

If a deal cannot be agreed before 22 May, the UK must participate in the European parliamentary elections, of which Theresa May is not in favour.

Despite the Irish economy continuing to perform well, the National Competitiveness Council has warned of possible threats to the competitiveness of businesses in Ireland.  Businesses need to keep a firm eye on being prepared for any outcome.

What are the business implications

While there is breathing space with no deal being avoided for the moment, we are entering a further prolonged period of uncertainty as to how and when the UK leaves the EU. The key thing is to use the time wisely. Businesses need to stay agile as Brexit stops being a moment in time and becomes the backdrop for strategy and investment decisions.

For some businesses, the wheels are already in motion. This extension will mean they need to decide whether to pause their Brexit preparations and keep their options open, roll back preparations, or re-evaluate their options on a more strategic basis. Many businesses now need to manage rolling, costly uncertainty as best they can, with no clarity as to when it might end. A challenge for businesses now is what to do and not to be complacent.

Many financial services firms had already pressed the button on moving part of their business to Dublin. They will likely continue to do so, but with a bit more time now given for them to complete transfers and get authorisations in place.

Another key risk factor for many Irish businesses is the value of Sterling. The Central Bank has warned that Sterling could fall close to parity with the Euro in the event of a no-deal crash out. This would cause significant competitive pressures and businesses will need to watch this space.

The UK leaving under the Withdrawal Agreement would be ideal for Irish businesses as the UK would enter the transition period. Our trading arrangements would remain as they are now until at least the end of 2020.

Companies should leverage this extension to advance their preparations. Even if you are well prepared, reassess your plans in the light of the extra time.

While Irish businesses would hope the Withdrawal Agreement to be agreed or for a softer 'Customs Union or Single Market' style Brexit, nothing is certain. The granting of more time is good news. However, the long-term future UK-EU relationship remains unclear. It will be very important for Ireland to keep in close contact with our UK and European colleagues as developments unfold.

London developments

On foot of last week's agreement on Brexit's extension, MPs were also relieved when it was confirmed that their Easter recess would go ahead. With MPs not returning to Parliament until 23 April, UK Brexit developments have been relatively quiet with activity limited to on-going discussions between the Government and Labour.

Whether a compromise between Mrs May and Jeremy Corbyn can be agreed remains to be seen. Regarding the ongoing discussions, UK Foreign Secretary Jeremy Hunt (this week on a diplomatic and trade mission in Japan) indicated that talks are "more detailed and more constructive than people have been expecting on both sides".

The last day for ratification of the Withdrawal Agreement is 22 May if the UK does not wish to hold European Parliament elections.

Mrs May hopes to finalise a deal before the European elections on 23 May, allowing her to cancel them in the UK, and exit the EU on 1 June.

Theresa May indicated that she would step down before the second round of negotiations starts, should her deal be approved. It was expected that in this situation, she would stand down as party leader after 22 May, but stay on as PM until a new leader has been elected. In the light of the continued rejection of the Withdrawal Agreement, the position is less clear.

Brussels developments

Addressing the last meeting of the European Parliament before the upcoming elections, Donald Tusk and Jean-Claude Juncker delivered two clear Brexit messages. Tusk, while acknowledging the general feeling of Brexit fatigue within both the EU and UK, implored both sides not to give up on trying to find a breakthrough: "on both sides of the Channel, everyone including myself, is exhausted with Brexit which is completely understandable. However, this is not an excuse to say: 'let's get it over with' just because we're tired. We must continue to deal with Brexit with an open mind, and in a civilised manner." Juncker had a more direct Brexit message, highlighting once again that the solution to Brexit must be found within the UK: "The answer to the question to which path the UK will take will have to come from London, and the earlier the better."

The European Council meeting agreed to grant Theresa May an extension to Article 50 until 31 October. If the Withdrawal Agreement is ratified before 31 October, Brexit will be on the first day of the following month.

The French looked for strong assurances of 'good behaviour', specifically a promise not to wield vetoes in the ongoing multi-annual budget discussions and appointments to top jobs. The European Council will review the "flextension" on 30 June; the first sitting of the new European Parliament is on 2 July.

Contact us

David McGee

Partner, PwC Ireland (Republic of)

Tel: +353 1 792 8785

John O'Loughlin

Partner, PwC Ireland (Republic of)

Tel: +353 1 792 6093

Andrew O'Callaghan

Partner, PwC Ireland (Republic of)

Tel: +353 1 792 6247

Owen McFeely

Director, PwC Ireland (Republic of)

Tel: 353 1 792 8162

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