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  HOME | Business & Economy (Click here for more)

Thomas Cook Bankruptcy Puts UK Key Sectors on Guard

LONDON – The bankruptcy of British tour operator Thomas Cook has put key sectors of the United Kingdom economy, such as the car industry, pharmaceuticals, agriculture and financial services, on guard over the possible adverse effects of Brexit.

The fall of the pound sterling, a slowdown of investments and difficulties in planning the future, given the uncertainty surrounding the process of leaving the European Union, are some of the obstacles that British companies are already dealing with.

Once the rupture with the EU materializes, firms also fear fresh obstacles in customs, tariffs and limitations in their ability to hire European workers.

CAR INDUSTRY

Investments in the British car industry have plummeted since the 2016 referendum, when Brexit was voted for.

In the first six months of this year, investments were limited to £90 million, of which £23 million came from the government, according to data from the Society of Motor Manufacturers and Traders.

The level of investment has been declining since 2016.

Before that year, the industry invested an average of more than £2.5 billion annually.

British plants rely on an intricate European network of suppliers.

Nearly 1,100 lorries cross the English Channel every day to deliver the necessary parts in their assembly lines to the factories.

Possible additional procedures and delays in customs after Brexit threaten the operation of these plants, while imposing tariffs on products that cross the border would increase production costs and make exports to the EU difficult.

PHARMACEUTICAL SECTOR

The British pharmaceutical sector maintains a turnover of £41 billion per year in the UK.

It is responsible for 8.2% of merchandise exports in the country and employs more than 113,000 people, between direct and indirect positions.

The transfer from London to Amsterdam of the European Medicines Agency, in whose shadow a wide network of companies in the sector is developing, has begun to detract from the UK as an international research center.

The British population represents 2.3% of the global market, compared to 22% of the other 27 community partners as a whole, which puts the EU in an advantageous position for pharmaceutical companies to prioritize the approval and launch of products in the member states.

Companies based in the UK also fear that Brexit will reduce their ability to attract specialized labor, and researchers anticipate that they will lose key European funding if they settle in UK.

Customs barriers after leaving the EU could also affect British patients, given that 73% of drug imports to the UK come from EU countries.

AGRICULTURE AND FOOD

British farmers last year received £3.5 billion in European aid, and there is a fear that some farms will be forced to close if the government does not cover that hole in financing.

European labor is also key for the agricultural and livestock industries, so the end of the free movement of community citizens is a threat to those sectors.

The UK exports food and non-alcoholic beverages from the EU worth £12.3 billion per year, while imports amount to £35.1 billion.

The tariffs that would be applied after a no-deal Brexit would hinder exports and increase the price of imports, which would affect consumers and businesses.

FINANCIAL SECTOR

British financial service firms will lose the so-called European “passport” after Brexit, and their access to customers in the community market will be especially restricted in the event of an unrecognized break.

The European Central Bank and the Bank of England have established contingency plans that avoid havoc on the market the day after the UK leaves the EU, although the operating permits that have been agreed upon will only be temporary in case the rupture occurs without having ratified a pact.

The fear of losing access to the single market has led British firms to invest £1.3 billion in relocation costs in community countries, legal advice and contingency provisions, according to data from EY Consulting.

Another £2.6 billion has been dedicated to injecting capital into new locations outside the UK.

Dublin has been the main beneficiary of this relocation, although Luxembourg, Frankfurt and Paris, among other cities, have also received new investments.

 

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