No-deal Brexit could send profit margins spiraling

Forcing our way out of the EU in October could end up with “profit margins spiraling” from public listed companies, MPs have been warned.

The Institute for Chartered Accountants for England and Wales (ICAEW) advised MPs that these series of events could have a “systemic” impact on the British economy.

“I would like to have this on record, it is likely we may well see after November 1 a flurry of profit warnings from companies finding themselves in completely unprecedented circumstances,” Martin Manuzi, the regional director for Europe of the ICAEW told the Brexit select committee.

The ICAEW includes around 100,000 members, which includes the massive accountancy firms, who provide auditing for some of the largest companies in the UK.

No-deal could shake the business world

Manuzi said if there was a rapid “dislocation” in the market, public limited companies would be required to tell their shareholders.

“Things that we ask ourselves? What is the cumulative effect on market confidence of the issuing of such profit warnings, and a systemic lack of confidence can have massive macroeconomic impacts,” he added.

Giles Derrington, the head of Brexit policy at techUK, advised the committee that the downturn in investment in startups was having a detrimental impact on the UK’s reputation as the first center for tech outside the US.

He said in the first three months of 2019 venture capital investment in the UK had fallen by “about 58% in terms of the deals done” and Germany was now catching up with the UK, which had been the clear frontrunner in the sector before.

No-deal Brexit could topple public companies

The Brexit committee was hearing the evidence about the impact of Brexit on the services sector, which includes about 80% of the UK’s economy.

Manuzi has pushed aside the idea that his statements were part of “project fear” when confronted by two MPs.

“I’m not here to do scaremongering,” Manuzi stated. The members of his cabinet had ‘“very deep concerns” about a loss of access to EU markets and it was very likely companies would be “looking again at what their profit forecasts will be and they may well be issuing statements” if there was no Brexit deal.

Manuzi stated that his members had been quite adamant that they did did not want a disorderly Brexit and still hoped the new prime minister would not plunge the UK into a no-deal departure.

MPs also advised that Brexit uncertainty was creating a “reputational impact” on tech investment, one of the UK’s biggest sectors.

Derrington told the committee that a no-deal outcome would have “significant impact” on data flows, the ability to recruit talented people and “wider perceptional reputation damage to the UK as a place for the global tech centre to come and grow and develop”.

“UK might be the best place to invest, but it is no longer the only place to invest,” he said.

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