Warning follows industry chiefs raising the alarm over damage extension will do to UK firms

This article is more than 1 year old

This article is more than 1 year old

The decision to extend the UK’s Brexit deadline will mean another six months of uncertainty for business, the head of the International Monetary Fund has warned.

Christine Lagarde, the IMF’s managing director, said that while she welcomed the fact that Britain would not leave the EU without a deal on Friday, nothing had been resolved.

The decision gave more time for discussions between the political parties and for companies to prepare for all options, Lagarde said.

“On the other hand, it is obvious it is continued uncertainty. And it does not resolve, other than by postponing what would have been a terrible outcome.”

The IMF said earlier this week that leaving the EU without a deal risked pushing the UK into a two-year recession.

UK business leaders have warned the government against wasting the Brexit extension, sounding the alarm that another deadlock in six months’ time would inflict renewed damage on the UK economy.

Stephen Phipson, the chief executive of the manufacturing lobby group Make UK, said some smaller businesses “won’t survive” the delay because they had ploughed resources into planning for a spring Brexit.

Businesses lower down the manufacturing supply chain have been forced to borrow money to pay for stockpiling. The extra burden of financing their lending for another six months could push some companies under, he said.

UK economy grows as manufacturers stockpile before Brexit Read more

“Some of these pressures they are under are unbearable … Some of [the smaller companies] are creaking under this working capital burden,” he said.

Make UK also said many EU customers would continue to hold back on orders, potentially leaving order books empty within weeks.

Although welcoming the delay until 31 October agreed at the emergency EU summit in Brussels early on Thursday morning, businesses said UK companies still faced significant risks.

Carolyn Fairbairn, the director-general of the CBI, said: “This new extension means that an imminent economic crisis has been averted, but it needs to mark a fresh start. More of the same will just mean more chaos this autumn.”

Businesses would now only adjust their worst-case no-deal Brexit plans, rather than cancel them altogether, she said. A source at a large manufacturer said the extension meant nothing had changed for their preparations other than prolonging the need for expensive stockpiling.

There are concerns the delay could present a renewed cliff-edge event for companies to prepare for on Halloween if MPs fail to break the deadlock in Westminster. The UK will be tested on its progress in June, meaning risks to the economy over the summer, while Brexit could happen earlier if parliament reaches a deal.

Analysts said the delay would rekindle domestic political uncertainty, with the raised likelihood of a snap election or second referendum. There is also little sign of how the Brexit deadlock in parliament may be broken.

Silvia Dall’Angelo, senior economist at the City fund manager Hermes Investment Management, said: “It is not clear that the extension will change the entrenched positions of the government and of MPs. The risk is that a diminished sense of urgency leads to idleness in coming weeks and months.”

UK manufacturers in despair at Brexit impasse, says CBI Read more

The pound was largely unaffected by the news of the extension as economists said a rebound for UK growth was unlikely during the continued uncertainty. Sterling was barely changed against the US dollar at $1.308 on Thursday morning, and against the euro, at €1.159.

Peter Dixon, an economist at Commerzbank, said: “The scope for lifting Brexit-related uncertainty is limited, which suggests little prospect of a sustainable rebound in either the economy or sterling.”