The impact of Brexit on European companies

31st January 19
-News, IAM

Daniel Pfund, Senior Financial Analyst

The United Kingdom has not been united at all since 23 June 2016, when the referendum vote on leaving the European Union was held. Given the small gap between supporters of yes and no, this is not surprising. But now that Theresa May’s proposal has been swept aside in parliament by an overwhelming majority (432 votes against 202), no one can predict the sequence of events. The United Kingdom is expected to leave the European Union in a few months, on March 29, 2019.

If there are no additional negotiations or an extension of time, a so-called “hard” exit will take place. In this case, the WTO rules will apply; customs tariffs and controls would enter into force. According to most-favoured-nation tariffs, the average would be around 8%, but some sectors would be heavily taxed, e.g. dairy products (35.9%), sugar and confectionery (21.2%) and meat (15.5%). The UK imports about 40% of its food, so the impact on consumer prices could be significant. In addition, it will require significant delays at the customs. All this would have a very negative impact not only on GDP of the UK, but of course that of all its economic partners, hence a large part of Europe.

The most at risk companies are UK producers; to a lesser extent some Swiss companies such as Lindt & Sprüngli or Emmi, which could see their profit fall by 1%. Finally, note that in order to prevent any risk of shortage, several companies have already made preventive stocks (Nestlé for example).