Successfully investing in Great Britain

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last updaten on 27 May 2020 | reading time approx. 3 minutes

 

 

 

How do you assess the current economic situation in Great Britain?

Although a recession did not actually take place after the completion of the Brexit, the economic growth has now fallen below the Eurozone's growth rate, at least temporarily the gross domestic product had even declined. The British pound remains relatively weak against both the US-dollar and the Euro. At the same time, inflation is approx. 2.3 per cent and still gradually rising. Currently, the Brexit effects are overshadowed by the Coronavirus crisis.

 

Uncertainty around the future relationship with the EU, being by far the UK's largest trading partner, is holding back investment in the UK or leads to a situation where investors decide to invest elsewhere. Although the conclusion of the exit agreement has provided relief and temporary stabilisation, the road to a free trade agreement between the UK and the EU is again a rocky road with a tight timetable. This is because the positions of the two negotiating partners are still far apart. The possibility that in the end, in addition to the withdrawal from the customs union, a relapse to the WTO rules can still not be ruled out. However, Great Britain is making progress in concluding its own free trade agreements, which can come into force after the end of the transition period. Nevertheless, some negotiations with larger contracting parties such as the USA are still difficult and, compared with the EU's foreign trade relations, Great Britain as an individual market will nonetheless have to accept some cutbacks. In any case, the most important sales market for Great Britain is the EU itself.

 

How would you describe the investment climate in Great Britain? Which sectors offer the largest potential?

The effects of Brexit are felt to the extent that fewer investors decide to invest in the UK. Enterprises continue “business as usual”, which results in a general economic slowdown. Also consumer spending is decreasing because consumers are reluctant to spend expecting further negative developments.

 

In the light of the Brexit, automotive manufacturers have significantly decreased the level of their investment commitments. However, there are also some positive signals, e.g. with regard to announcements that new assembly lines will be established or the existing ones extended. Furthermore, the expansion of electro mobility as well as infrastructure and energy projects offer a lot of potential. The government is also considering additional tax reliefs in order to increase the UK's attractiveness to investors. But no specific proposals have been presented yet, except for the reduction in the rate of corporation tax which was adopted a long time ago.
  

What challenges do German companies face during their business ventures into Great Britain?

Until the end of 2020, everything will remain the same thanks to the Withdrawal Agreement. After that, however, German entrepreneurs will be faced with an uncertainty that should not be underestimated. Long-term investments are therefore always associated with a certain amount of risk. The nature of the challenges is varied. Standards and legislation, including regulatory requirements, are likely to diverge increasingly, which means that more transfer work is needed to be able to work across borders. This in turn means more administrative and time consuming work, which leads to higher costs. The detailed consequences for customs and foreign trade cannot yet be reliably assessed in view of the FTA yet to be negotiated.

 

How does Brexit affect the UK's attractiveness to highly qualified work force?

For EU residence rights exercised during the transitional period, the Withdrawal Agreement provides a certain degree of protection of the status quo. In Great Britain, EU citizens can still apply for “settled” or “pre-settled” status until the end of 2020. The government has already presented new immigration rules for 2021, based on a points system and sponsorships by employers.

 

Nevertheless, the attractiveness of the UK as a destination for potential employees is deteriorating since the aspect of employing EU foreigners in the UK in the future is still uncertain. Whereas the UK continues to be somewhat attractive to qualified workers due to the language itself and the internationally recognised educational institutions, its popularity is, however, decreasing since it is still uncertain whether foreigners will be allowed to settle here in the future. Consequently, immigration from European countries is on the decrease. Businesses are either planning assignments rather in the short term or are already considering alternatives, especially in terms of developing the locations within and outside the UK.

 

In your opinion, how will Great Britain develop?

With a population of approx. 66 million inhabitants, the UK will remain an important player on the international scene. In addition, some new trade opportunities may, indeed, arise for the UK after breaking away from the EU. This is, however, in the long-term perspective. In the short and medium term, we should expect long periods of political and thus also economic uncertainty and a lack of predictability. These factors are generally considered to at least curb the economy. In this context, a slowdown in the positive economic trend that prevailed before the Brexit vote is expected to continue, which has not changed after completing the Brexit. In addition, the UK's standards and legislation are expected to drift off from those of the EU in the long term, which means that working on a cross-border basis will require more effort. This, in turn, means higher costs. In addition, this year's Coronavirus crisis means an enormous additional burden for the economy.

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