So is it going to be a “hard” or a “soft” Brexit?
Since our new Prime Minister began to lay out her Brexit negotiating stance this question has become a persistent preoccupation, particularly in business circles.
To consider the answer we need to separate the politics of hard and soft, from the financial and stock market consequences we are all experiencing at this time.
The dramatic, and boy has it been dramatic, slide in the pound has lessened the downside of longer term uncertainty in business. If, as many FTSE companies have, a large part of your revenues come from outside the UK then you are sitting quite pretty at the moment. Add to that the low cost of capital from historic low interest rates and continued quantitative easing by the Bank of England and you can see why stock markets have run up so high since the referendum result.
However, things could begin to change quickly. Companies’ stock reserves will only last a certain time and soon will have to be replaced with stock, driven higher in price by the weakened pound.
Tesco and Unilever’s stand-off, the so-called Marmite Wars, sets an early example of the impact of higher import prices. Who will bear the brunt of the higher costs that are being forced on businesses: the consumer, the retailer or the manufacturer? The Marmite Wars are just the start. Sadly, the twists and turns ahead will create uncertainty and depress investment and growth.
By this time next year many of the year-on-year benefits we are seeing across the collective profit and loss accounts of businesses with strong overseas sales will have disappeared. It will be interesting to be a fly on the wall in boardrooms and shareholder meetings at that stage. Potentially we could be in line for a string of profit warnings.
For those companies that can enjoy the currency honeymoon period, now is the time to get on with things that will help prepare for an unsure future. Now, more than ever, companies should not be banking profits but investing in tech and people to get ready for leaner times.
This is where business people look to the politicians for help. Could getting the politics right – the choice between a hard or soft Brexit – lead to a better outcome?
The political side of the equation is shrouded, more than ever, in ambiguity. Merkel and May have drawn their red lines and on first glance the overlap looks minimal. I expect to see a deal on goods, although it may simply be to accept WTO rules. As for services, by far the most important part of the UK economy, there are many possibilities in any solution. Passporting to help financial services looks unlikely, unless there is unrestricted movement of workers within the current EU, which will not go down well with Leave voters. Regardless, controls over migration are hard to achieve, even when that is what voters want.
Whether hard or soft, what is clear is that we have to shape our own destiny and the future could be bright in the longer term. This is no time to delay those technology or efficiency projects. Now more than ever, we need to work with entrepreneurs to help disrupt existing and create new markets for our goods and services.
This is not the time for 'I told you so' from either side of the political divide, or from their European counterparts, but for action for us to maintain the momentum we have created and secure a competitive future for us all.