Many U.K. Companies Are Taking Their Chances With a No-Deal Brexit

(Bloomberg) --

When a potential cliff-edge Brexit loomed last spring, Albion Stone Plc stockpiled equipment and materials as a precaution against disruptions. Not this time around.

Michael Poultney, the business director at the Redhill, England-based firm, is still smarting after spending more than 200,000 pounds ($240,000) on preparations, only to see Britain's exit from the European Union pushed back to Oct. 31, or perhaps further.

“I don't think it's worth me wasting another 200,000 pounds, buying in stock, on the very slim possibility there could be a no-deal Brexit,” Poultney said in an interview. The company, which mines limestone in Dorset, buys saws and tools from Italy and carries out stonework projects in the EU.

Poultney isn't alone in his laissez-faire approach: about 80% of Britain's small firms are unprepared for a disruptive divorce from the EU in October, according to the Confederation of British Industry. Small and mid-sized enterprises employ some 16.3 million people in the U.K., or 60% of private sector staffing, and generate 2 trillion pounds in annual revenue, government figures show.

Their lack of preparation leaves the U.K. particularly vulnerable to an economic shock, said Nicole Sykes, head of EU negotiations at the CBI, the country's biggest business lobby group.

“It's a huge problem,” she said. “If you're trading goods and you haven't filled out the right forms, you may get turned away at the border or your goods might get impounded.”

QuicktakeWhat ‘No-Deal Brexit' Means and Why It's a Big Risk

In a marked change from predecessor Theresa May, new U.K. Prime Minister Boris Johnson is accelerating efforts to prepare the nation to quit the EU without a negotiated agreement. He's doubling spending on no-deal Brexit readiness this year, including new border and customs operations, and plans a public communications campaign. Johnson has vowed to leave the EU “do or die” on Oct. 31, a stance that's pushed the pound to its lowest in two years.

Johnson has a majority of just one seat in the House of Commons after the Conservatives lost a by-election in Wales, giving him little room to maneuver. A failure to find a compromise with the EU will put Britain on course to exit the bloc with no accord in place to ensure smooth cross-border trade and orderly markets. That could trigger delays at ports, shortages of essential supplies including medicines, and a recession.

To be sure, large firms—from Airbus SE and Tesco Plc to AstraZeneca Plc—have been gaming out Brexit scenarios for years. Yet poor preparation by smaller businesses could disrupt larger ones by clogging up supply chains and contributing to border delays, said Annie Geraghty, a consultant at EY in London.

For some, Brexit contingency planning is simply too costly. Buttermilk, a maker of caramel sea-salt fudge and peanut brittle in Cornwall, southwest England, has decided against investing in manufacturing machinery it imports from Italy and Denmark because the expense is too great.

“You'd have to invest when nobody wants to invest,” said Tracy McDonnell Goad, the company's managing director, who exports 15% of her products, mostly to Germany. She's worried about losing that market in a hard Brexit, and about potentially having to reduce her 45-person workforce. “It's a bit of a painful time.”

Others have a sense of futility. Norfolk-based Gnaw Chocolate, which makes bars like chili and lime dark chocolate, exports three-quarters of its produce to markets including France, Germany and Denmark. Director Matt Legon fears tariffs on exports to the EU in a no-deal Brexit would scupper half of his contracts and leave his company facing collapse, making it pointless to stockpile.

“Our business is at risk,” said Legon, who imports the majority of his raw ingredients from Italy and Belgium and uses packaging mills based around Europe. “I can't keep increasing stock for longer and then suddenly my export markets get shut down.”

In an interview at Albion Stone's noisy factory in Portland, Julian Sparrow, the masonry foreman, said people on the floor don't discuss what might happen to the company if the U.K. leaves the EU without an agreement. But they are aware it could have a ripple effect and possibly impact some of their jobs.

Given the potential harm of a no-deal departure, Poultney, the business director, says he's convinced it won't happen.

“We just cannot believe a new prime minister could possibly take us to the brink and cause all the damage that was caused last time again for no reason,” said Poultney. He has no back-up plan if he's wrong.

--With assistance from Greg Ritchie, Ellen Milligan, Irene Garcia Perez and Aine Quinn.

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net, Frank Connelly

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