The retail sector in the United Kingdom has suffered the ravages of the coronavirus, especially with regard to footwear and clothing, as in any other country. Consumers have benefited from confinement and have seen prices drop in recent months, to the point that they are chaining 13 consecutive months of decline. With the pandemic and the risk of outbreaks still very present for businesses, the threat that the country can leave the European Union (EU) on December 31 without a trade agreement between the two parties "is a pressing concern," says Helen Dickinson, chief executive of the British Retail Consortium.
Hard Brexit is still on the table. Although the analysis houses give a small percentage of possibilities that the three long years of negotiations that have preceded the divorce between London and Brussels have this outcome, their presence weighs like a slab on the minds of the 'retailers'. The pandemic has been "a shock" for the retail industry, Dickinson explains. In addition to this, the threat that the country would be seen outside the EU without a trade agreement "would cause serious disruptions in supply chains, far beyond those experienced during confinement, resulting in higher prices and reduced availability in stores"he argues.
"It is imperative that the government get an agreement with the EU or consumers will pay for the duck ", emphasizes the high position of the British entity of merchants, who anticipates that in this context prices will rise. Shoppers have been acquiring more products in supermarkets during the 'closure', particularly in supermarkets and frozen foods, but also in higher value categories such as alcohol, where sales have increased more than 30% in recent weeks. However, food inflation remains at 2.9%, somewhat less on fresh produce as seasonal produce becomes available. "Retailers and their suppliers continue to work together to address unprecedented high demand due to the shutdown," says Mike Watkins, analyst at Nielsen.
However, the consultant insists that "buyers will have to bear the cost of a non-agreement. Just in case, companies are preparing for this scenario and are dedicated to managing their stocks in order to prevent tariffs and interruption of flow of goods crossing the border between the United Kingdom and the EU if there is no free trade agreement since January 1, 2021. In this case, both parties will stop negotiating under the terms of the World Trade Organization, which may derive in the imposition of high levies, as an 8% tariff on chocolate and 30% on orange juice.
At the same time, the government is concerned that companies are not ready for the wave of new post-Brexit procedures, which will cause trucks to stop at ports. Earlier this month, Cabinet Office Minister Michael Gove said he was concerned about the lack of preparatory measures taken by companies, and the government is planning an "shock and fear" information campaign in the second half this year for encourage companies to act.
In just six months the United Kingdom will finally sever its ties with the EU and there is little clear about what the subsequent relationship will be like. This Monday, eight weeks of negotiations between London and Brussels have begun – the first face-to-face after Covid-19-, which must provide a framework for exports. "There are signs that both sides intend to soften their positions in the negotiations," said Danske Bank economists. However, all the experts consulted coincide in stressing that things have to change a lot to meet the set schedule: having a draft at the end of the summer to present it at the October EU summit.
The experts of the Danish entity warn that there is up to a 65% chance that the agreement they reach is a “Simple free trade agreement for goods (not services) in the autumn”. "We don't expect any progress this summer," they comment and warn, "We still assign a 35% chance of a Brexit with no deal by the end of the year." In Berenberg, on the other hand, they reduce the risk of 'hard-Brexit' to 5%, while they are not optimistic in their forecasts towards the idea that there is a full agreement between both parties (35%). They are inclined to "agree to some modest measures to avoid a disorderly and hard exit (60%)" and they venture that other aspects will be polished in the coming years.
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