For businesses, Brexit is happening already

Mylands paint, founded 135 years ago, has survived two World Wars, the Great Depression and the end of the British Empire by adapting its products and practices.

So when it was faced with the economic upheaval threatened by Britain's departure from the European Union, CEO Dominic Myland wasn't going to wait for politicians to resolve the impasse that has kept the nation hanging for three years.

The company, which made the blackout paint that obscured London bridges during World War II and supplies film and TV productions such as "Harry Potter" and "Game of Thrones," has increased stocks of raw materials and moved extra product to a distributor in Germany in case of border checks.

 

If delivery delays become the norm, it may have to set up a whole new company on the continent, Myland said.

"We are very close to opening a depot close to the center of mainland Europe (from) which we can supply a lot of our European customers," Myland said.

"That's more of a strategic long-term plan for us anyway, but we may accelerate that process because of the fallout from Brexit if it gets very tricky to export goods."

As politicians squabble over how and when Britain will leave the EU, Brexit is already reshaping the economy.

Many businesses have decided they can't wait for a Brexit agreement, which now seems like it could be delayed again.

Initially planned for March, it was pushed back to October 31 and now may not happen before January.

So companies are shifting investments, creating new supply chains and stockpiling goods to mitigate any damage that would occur from leaving the EU, with or without a deal on trade terms.

Adding to their difficulties, business groups say they aren't getting enough help from Prime Minister Boris Johnson's government.

The British Chambers of Commerce says Johnson's government has only fully answered five of 36 "business-critical" questions its members must have answered before they can plan for a no-deal exit.

Issues where information is still needed include what access British manufacturers will have to European markets, the mechanism for resolving disputes with firms based in the EU and whether companies will be able to move skilled workers between the U.K. and Europe.

That uncertainty is making it difficult to plan.

Among small businesses that believe Brexit will affect them, just 21per cent have prepared for the fallout and 63 per cent say they are unable to prepare, according to a survey by the Federation of Small Businesses released September 27.

"The Brexit clock may appear to stop from time to time, but for firms it keeps ticking," Carolyn Fairbairn, director general of the Confederation of British Industries, said last month.

"Until a deal is agreed, companies will continue to divert billions of pounds from productive investment to no-deal preparations, and international investors will continue to question if the UK is a stable, open place to do business."

The toll on the British economy is becoming clear.

Investment in the auto industry effectively stopped in the first half of this year as concern about a no-deal Brexit makes it harder for carmakers to respond to changes in the sector like the shift to electric vehicles.

The Society of Motor Manufacturers and Traders says companies made just 90 million pounds (USD 110 million) of new investments in the six months through June, compared with an average annual total of 2.7 billion pounds (USD 3.4 billion) over the previous seven years. Car production dropped 20.1 per cent in the first half.

More broadly, 64 per cent of manufacturers say they have taken a financial hit during the past two years as they struggle to prepare for an unknown trading environment after Brexit, according to research published last week by Make UK, a manufacturers' organisation, and the law firm Squire Patton Boggs.

Brexit uncertainty also appears to be damping enthusiasm for corporate deals, with a significant slowdown in initial public offerings and acquisitions this year, the law firm Baker McKenzie said in a report last week.

If Britain leaves the EU without a deal, cross-border shipments could become subject to tariffs, as well as border checks and other disruptions that don't currently exist for trade between EU member states.

"We have already seen major companies voting with their feet and taking their planned business operations away from the UK while many businesses are losing out on new contracts with EU customers because of the uncertain future trading arrangements," said Stephen Phipson, CEO of Make UK.

"This is only going to get worse until a deal with a sensible transition period is agreed."

Mylands, which makes a unique luxury paint that contains crushed marble, is among the companies trying to prepare. But that costs money.

The expense of keeping more raw materials on hand has affected cash flow and that's magnified by the weaker currency, Dominic Myland said. The pound is down about 15 per cent against the dollar and the euro since the 2016 referendum in which voters decided to leave the EU.

"Fifty or sixty percent of everything we buy comes via the European Union, whether it's brokered in Europe or manufactured in Europe," he said. On top of the currency effect, the cost of sourcing goods has risen globally.