British businesses have rejected claims by leading Brexiters that trade with the rest of the world can replace free access to European markets, arguing that quitting the single market and customs union without a trade deal with the EU will harm their growth prospects.
In a report by the former shadow chancellor Ed Balls and Peter Sands, senior fellows at Harvard University’s Mossavar-Rahmani Center for Business and Government, UK businesses owners warned that a bad deal, or no deal, on Brexit would be disastrous for British jobs, investment and growth.
The warning comes as financial speculators circle London’s stock markets and investors bet on the value of the pound, triggering a period of intense volatility while No 10 attempts to restore a sense of confidence in the government.
On Friday, in the hours immediately after the surprise election result, the pound fell to an eight-week low and shares in banks, builders and retailers fell. The markets recovered as it seemed that the Conservatives had reached a deal with the DUP, but on Sunday the status of that deal looked less clear cut.
Figures out this week are expected to add further pressure on Theresa May as she fends off criticism of her plans to maintain cuts to government spending and restrict public sector pay. Analysts forecast the UK’s inflation rate will remain at elevated levels under May while wages remain stagnant, forcing ministers to admit that living standards will continue to plummet during the summer and most likely into the autumn.
Neil Dwane, global strategist at Allianz Global Investors, said: “Any possibility of another election – and uncertainty over who will lead the next government – puts downward pressure on sterling in the short term.”
More than 50 business owners and trade associations were interviewed for the report by Balls and Sands. It found they were “highly sceptical” that unfettered access to the EU market would be replaced with a growth in trade with other parts of the world.
Balls said: “At the time of the referendum, many British companies thought that Brexit might lead to a reduced regulatory burden. But now they’re worried that if Britain leaves the single market and the customs union, the opposite will be true.”
Companies said they wanted to remain in the single market or customs union, and if this was unachievable they wanted an agreement that made trade as frictionless as possible. The prospect of reverting to WTO standards, which the government has suggested by saying that no deal is better than a bad deal, was of concern to many who feared a sharp increase in tariffs.
Balls said: “British companies are desperate to move beyond the empty rhetoric that ‘Brexit means Brexit’. They are clear that both ‘no deal’ and a ‘bad deal’ would be disastrous for British jobs, investment and growth.”
The study came as the first poll of UK business leaders since the election found a plunge in confidence in the economic outlook and concern over the make up of the government. The survey of almost 700 members of the Institute of Directors found 65% believed uncertainty over the makeup of the government was “a significant concern” for the UK economy. It also showed that 57% were pessimistic about the economy over the next 12 months, compared with 37% the previous month. Reaching a new trade deal with the EU should be the overall priority for the new government, respondents said.
A survey for the Resolution Foundation found many employers were unprepared for a new era of lower migration. Of 500 employers with staff from the EU or EEA, almost half had “totally unrealistic expectations of what the post-Brexit immigration regime might be”, the thinktank said. It added that 17% of firms expected no change to the system of freedom of movement, while 30% expected to see it maintained for those with a job offer.
The foundation said Britain’s post-Brexit migration policy should not be solely determined by what businesses wanted, but it was vital that the new government listened to them and gave them chance to prepare.
Torsten Bell, the thinktank’s director, said: “Whatever people’s views on Brexit, the journey not just the destination matter hugely to growth, jobs and living standards. Now is the time for both firms and government to focus on how we navigate that journey and the changes to our labour market it brings.