Uncertainty Over Brexit Leaves the B2B World in Suspense

May 30, 2019 Alyssa Callahan

Update – May 30, 2019:

On May 24, 2019, Theresa May announced her resignation as the United Kingdom’s prime minister and set her departure date for June 7, 2019. After that time, she will stand in as caretaker prime minister while her successor is chosen. Whoever is selected for the position will take on the enormous task of shepherding the U.K. through Brexit.

The current deadline for a Brexit deal remains October 31, 2019, but the outcome now depends entirely on the next prime minister’s plans.

May’s resignation elicited a further decline in the value of pound sterling against both the euro and U.S. dollar. The standing of the politically reliant GBP depends on the U.K. and E.U.’s confidence in the next prime minister. Regardless of who takes office, and whether they reach a deal or even offer a second referendum vote (an unpopular option in Parliament), the U.K. market and businesses will take some time to stabilize.

 

When talk turns to Brexit, much of the discussion revolves around what will happen once the United Kingdom of Great Britain and Northern Ireland leaves the European Union. While the United Kingdom Parliament hashes out a withdrawal agreement, with Prime Minister Theresa May at the helm, the economy is already shifting in anticipation of… what? The trouble is, no one is quite sure. Even experts can only make educated guesses since their research hinges on the type of withdrawal the United Kingdom and European Union ultimately consent to.

two chesspieces representing the EU and Great Britain sit on a chessboard

Where Brexit currently stands – A high-level view

The European Union recently approved a second extension of the Brexit deadline to allow May additional time to forge a deal in Parliament and finalize the United Kingdom’s withdrawal from the Union. While the new October 31, 2019 deadline offers some breathing room, it leaves the United Kingdom and European Union in an uncertain economic limbo for most of this year.

The spiderweb of potential events that lay ahead for the United Kingdom stem from two of the most likely outcomes:

  1. May passes her withdrawal agreement in Parliament by October 31st. If she succeeds, the United Kingdom can hammer out future trade deals with the European Union, to be expanded upon after the separation is finalized.
  2. May does not pass her withdrawal agreement by October 31st. This would mean the United Kingdom leaves with no trade deals in place, and very little room to negotiate ideal terms in the future. A “no-deal” situation has the potential to create lingering consequences, particularly at the border between Northern Ireland – which is part of the United Kingdom – and the Republic of Ireland, with the European Union.

While those in favor of Brexit are eager for a more economically independent United Kingdom, others hope that the withdrawal agreement will come with lenient tariffs, not just at the Irish border, but for trade across the United Kingdom and European Union. Unfortunately, only time (and an approved withdrawal agreement) will tell how the trade relationship between the United Kingdom and Europe continues.

What Brexit means for businesses in the United Kingdom

Politics aside, the United Kingdom has already seen changes to their market and businesses since the original Brexit vote in late 2016. The pound sterling (GBP), which dropped drastically after the majority of United Kingdom citizens voted to leave the European Union, remains weakened in comparison to the United States Dollar (USD). The approach of each Brexit deadline has triggered a slight drop in the market, followed by a recovery a few days after the granted extensions.

The GBP and Euro (EUR) have become tied to shifts in the political sphere, rather than the market. Companies are making financial decisions in anticipation of a plummeting currency values caused by Brexit. Many banks have already moved their home offices from London to various European cities. Healthcare facilities are stockpiling life-saving medicines in the event of a shortage. United Kingdom-based businesses are reducing their investments and employment opportunities.

How will Brexit affect U.S. business with the United Kingdom?

With a diminished value for pound sterling, currency exchanges between USD, GBP, and EUR won’t be very attractive for a while, especially when considering the added per-payment fees charged by banks to transmit funds across international borders. Global businesses depend on stable markets to keep exchange rates as uniform as possible; someone will always be paying the difference, whether it’s the buyer purchasing more currency, or the supplier receiving a reduced amount. 

Companies whose accounts payable teams have adopted payment automation into their processes can use their rebates to mitigate irregular exchange rates. Payment solutions that lower the cost of electronic payments through exchange rate transparency ultimately improve the buyer’s relationships with their suppliers.

Only one thing left to do

The United Kingdom and European Union are in a transitory stage – and that is an enormous understatement. The Brexit experience is genuinely frustrating because it has no precedent, so no one’s sure what will ultimately happen. Economic growth may stagnate for a while, but as with any market, where there are ebbs, there will be flows. The only thing left to do is what the United Kingdom already does best: “Keep calm and carry on”.

This article was originally published on the PaymentsJournal.

About the Author

Alyssa Callahan

Alyssa is a Technical Marketing Writer at Nvoicepay. She has four years of experience in the B2B payment industry, specializing in cross-border B2B payment processes.

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