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A model presents a creation during the Burberry catwalk show at London Fashion Week Women's A/W19 in London, Britain February 17, 2019. REUTERS/Henry Nicholls - RC1251B159C0
Reuters/Henry Nicholls
Burberry would be among the British brands to take a hit.
DEAL OR NO DEAL?

A no-deal Brexit could cost the UK luxury sector $8.9 billion a year

By Marc Bain

Time is running out for UK prime minister Theresa May and the British parliament to reach a deal on Brexit. Unless they’re able to, the UK will immediately withdraw from the European Union on March 29, without a clear framework in place for what the relationship between the two will look like.

That outcome could hammer the high-end exports of British luxury makers including Burberry, Alexander McQueen, Bentley, and more, costing them £6.8 billion ($8.9 billion) per year, according to research commissioned by Walpole, the trade group representing the British luxury industry.

While a no-deal Brexit is currently just one of several options for how the situation could play out, it’s looking feasible enough that many are worrying, including industries that rely on exports. According to Walpole, the UK luxury industry exports about 80% of what it makes, mostly to Europe.

Its research, which Reuters saw excerpts of, found that up to 20% of the current value of UK luxury exports could be in jeopardy in a no-deal Brexit, mostly due to changes in market access relating to tariff and non-tariff barriers that would kick in. Non-tariff measures would include regulations on health and safety, or environmental standards. In cases where the UK and the export markets have different rules, British brands would have to spend the time and money showing they’re in compliance.

Between these changes and the tariffs that would take effect, British luxury brands could see a loss of around £6 billion annually in exports to the EU, and a further loss of about £800 million to the Asia-Pacific region, since they would also lose access to free-trade agreements negotiated by the EU to countries including Japan, Korea, and Singapore.

“British luxury businesses are committed to staying in Britain, but we are losing patience with the government taking us to the knife edge of No Deal,” said Walpole’s CEO, Helen Brocklebank, in a statement. “We urge the government categorically to rule out No Deal exit.”

The situation sounds ominous, but it’s worth remembering that these costs are annual. And the stakes are so high, not just for the luxury sector but the entire British economy, that lawmakers will be anxious to work something out.

“Most likely, there will be a deal hammered together at the 11th hour between Britain and the EU,” argued Neil Winton, a former European automotive correspondent for Reuters, in a story for Forbes about the outlook for the global auto industry. “But if that fails, given the huge importance of two-way trade between the likes of Germany, France, and Britain, there will pressure to first of all to come up with a short-term fix. Limbo will only last days or maybe a few weeks at the most.”

Of course even a few days or weeks of limbo would carry costs, and that’s enough to worry many.

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