Agents’ survey on preparations for EU withdrawal - 2019 Q4

Our Agents asked their business contacts about their preparations for EU withdrawal. This summary of their responses represents the views of over 300 companies.
Published on 19 December 2019

The Agents’ survey was run after the extension of the EU withdrawal deadline to 31 January 2020. Almost all respondents said they were either ‘fully ready’ or ‘as ready as can be’ for a no-deal Brexit – similar to the October survey.

The contingency actions most commonly reported by companies in preparation for EU withdrawal were: stockbuilding, engaging with customers to manage risks and applying for the necessary certifications (Chart 1).

Chart 1 Stockbuilding was the most common contingency plan

Types of contingency action(a)

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(a) Companies were asked 'If applicable, what type of contingency actions has your company undertaken, is planning or carrying out? (please tick any that apply)'. This chart shows a subset of responses.

In contrast to the period ahead of the March 2019 Brexit deadline, very few respondents said they planned shutdowns in early February 2020.

In general, respondents continued to expect more positive outcomes for their business if there is a withdrawal deal and transition period (Chart 2). However, companies’ expectations for output and employment growth over the next 12 months in a no-deal Brexit were somewhat less negative than in previous surveys.

Nonetheless, the absolute differences between expectations under ‘deal’ and ‘no-deal’ scenarios have not changed markedly over the seven vintages of the survey conducted during 2019.

Chart 2 Companies were a little less negative about the impact of a no-deal Brexit, but still expected better outcomes with a deal and transition period

Expectations for a deal and no-deal Brexit(a)

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(a) Companies were asked 'Relative to the last 12 months, what is your expectation for the following aspects of your business over the next year in each scenario?’.
(b) Respondents were asked to choose between ‘Fall greater than 10%’; ‘-10 to -2%’; ‘Little change’; ‘+2 to+10%’ and ‘Rise greater than 10%’. To calculate these approximate growth rates, the following estimates were assumed for each response bucket: +/-6% for the ‘+/-2-10%’ response category; 0% for the ‘Little change’ response category, and +/-15% for the ‘+/- >10%’ category.

The modest improvement in expectations under a no-deal Brexit could be due to a variety of factors. First, respondents may have felt more upbeat about the economic outlook, for example because of reports of potential fiscal policy expansion during the election campaign.

Second, differences in the sample of companies included in the surveys may also have accounted for some of the apparent improvement in sentiment.

Finally, it is possible that companies’ responses reflected a lower expected probability of a no-deal Brexit. According to the Decision Makers’ Panel survey, respondents put the average probability of the UK leaving the EU without a deal at 16% in November. This has fallen steadily from around 40% in August.

In order to gauge how quickly activity could recover once there is more clarity about the Brexit outcome, companies were asked whether and when they planned to reinstate any investment or hiring plans that had been put on hold after the EU referendum (Chart 3).

Chart 3 Some companies expect to reinstate delayed hiring and investment plans in 2020

Timing of reinstated plans(a)

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(a) Companies were asked 'If you put any plans for investment/hiring on hold after the EU withdrawal referendum, when do you expect to reinstate those investment/hiring plans?'.

Only a quarter of the total number of companies surveyed answered the question. This may suggest that many respondents have not yet decided whether they will reinstate investment or hiring plans. Some respondents may not have paused investment or hiring.

Of those that did answer, around two fifths said they expected to reinstate investment plans by the end of 2020 – although not imminently – while a similar proportion said they did not expect to reinstate investment plans at all.

To find out whether Brexit might be affecting trade flows, contacts were asked whether they had seen any reorientation of supply chains.

Around 10% of respondents said that EU customers had been re-orienting their supply chains away from UK businesses over the past year. Around 4% of contacts reported shifting away from EU suppliers towards UK ones.

Just over a third of companies said that preparing for Brexit had raised their working capital needs, up from around a fifth in the October survey (Chart 4).

Chart 4 Companies said Brexit has increased their working capital needs

Higher working capital needs from Brexit preparations(a)

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(a) Companies were asked ‘Have your preparations for EU withdrawal raised your working capital needs?’.

The need for working capital was more pronounced among consumer services companies, though this was driven by a few large companies.

Construction and manufacturing companies also reported a Brexit-related increase in the need for working capital.

Businesses said they had generally financed working capital needs through internal cash flow.

Companies continued to report that the cost and availability of credit were slightly tighter than a year ago, consistent with broader Agency intelligence on credit availability.

Methodology

The survey was conducted between 4 November and 27 November 2019. Around 320 companies responded, accounting for 380,000 employees and a combined UK turnover of £96 billion. Responses were weighted by employment and then by sector.

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