Business leaders warn Boris Johnson that Brexit deal is essential

Business leaders have warned Boris Johnson that securing a Brexit deal is essential for safeguarding Britain’s economic recovery from the coronavirus outbreak and avoiding higher prices in the shops for British consumers.

Sounding the alarm after the prime minister said no deal would be a “good outcome” for Britain and confirmed plans that could undermine the government’s commitment to the EU withdrawal agreement, business groups said failure to compromise in talks this week would severely damage Britain’s fragile economic recovery.

“Amid all the noise and negotiations, businesses in the UK and EU remain clear – a good deal is essential. An agreement will be the foundation for post-Covid recovery across the continent,” said Josh Hardie, deputy director general of the CBI, the business lobby group.

“Getting a deal requires political leadership and compromise from both sides. That is needed urgently in the coming weeks.”

Allie Renison, head of Europe and trade policy at the Institute of Directors, said few companies would welcome the prospect of no deal. “Even among our members who want to diverge from EU rules, the majority say reaching a deal is important for the economy,” she said.

At the outset of a tense week of negotiations between London and Brussels, reports that the UK government could backslide on the EU withdrawal agreement signed in January sent the pound tumbling on the international currency markets. In a shift that could push up the cost of imports to Britain if the sell-off is sustained, sterling fell about 1% against the dollar on Monday to trade below $1.32, and fell by a similar amount against the euro to below €1.12.

“The Brexit heat is back on and sterling is, in our view, unprepared,” said Petr Krpata, a currency analyst at the Dutch bank ING, warning that the pound could reach parity with the euro within weeks if the Brexit talks deteriorate further.

Raising the temperature in the talks, Johnson issued an ultimatum to negotiators on Monday, saying an agreement must be reached by 15 October or Britain will walk away.

However, business leaders warned that British companies were ill-equipped to cope with a no-deal departure from the transition period with the economy in the deepest recession since modern records began.

Should a deal fail to be reached in time, business leaders said consumers could face higher prices in the shops as a result of border disruption, tariffs and a weaker pound driving up the cost of imports.

“A no deal would be the worst outcome for consumers,” said Andrew Opie, director of food and sustainability at the British Retail Consortium. He said hundreds of millions of pounds in tariffs would be added to the cost of food in UK supermarkets after a no-deal departure, disproportionally hitting the poorest households.

Ian Wright, chief executive of the Food and Drink Federation, said: “While shoppers have rightly come to expect a wide range of products on shop shelves and menus, a no-deal Brexit scenario would result in significant changes to availability, quality and value.”

Manufacturers’ groups warned that Brexit stockpiles had been depleted during the Covid lockdown amid widespread disruption to businesses, and that many firms were running out of cash and time to prepare for leaving the EU.

Paul Everitt, chief executive of UK aerospace lobby group ADS, said manufacturers relied on complex pan-European supply chains. Calling on both sides to take a more pragmatic approach to minimise disruption, he said: “The economic impact of the pandemic makes the cost of failure in negotiations especially severe. No deal would bring new costs and delays that harm our ability to compete in international markets.”

City investment analysts said the latest developments could be an attempt by the UK to apply maximum pressure on the EU at the onset of talks, before both sides come to a compromise at a later date. Krpata said: “After all, we saw similar fireworks this time last year, only for a deal to materialise weeks later.”

However, investors said Johnson could take a tougher Brexit stance because his reputation with backbench Tory MPs has been damaged by his handling of Covid-19. Gilles Moëc, the group chief economist at Axa Investment Managers, said: “Getting Brexit done by year-end with a minimum of concessions to the EU is probably now a matter of political survival for Boris Johnson.

“So, the probability of a no-deal Brexit continues to increase, unfortunately.”