Research by Barclays shows that global investors view the Brexit negotiations between the UK and the EU with pessimism, with the majority of investors saying this will have a negative impact on business and assets.

The majority of the 642 respondents in the investor survey said they expect the Brexit talks to “involve a series of delays”, with about 64 per cent saying there is a slim likelihood of an orderly Brexit. This is expected to impact assets, including sterling, which has already depreciated by more than 20 per cent against the euro in the past year (from €1.30 last June to €1.13 one year on). Bloomberg reports that investors do not expect sterling to recover to its pre-referendum levels.

Real effect of Brexit

This week, Bank of England governor Mark Carney, together with UK chancellor Phillip Hammond, drew a clear link between Brexit and the UK's weaker income growth. In the UK, real wages are falling as the price of goods is now rising. Carney and Hammond called for a pragmatic approach to leaving the EU, saying the UK should negotiate a form of customs agreement and current border arrangements in place for some time after March 2019. This is a softer approach to the one so far advocated by Theresa May. However, the continued doubt over what form Brexit will take and how long the process will last is an important point of concern for businesses.

CFO concerns

Chief financial officers (CFOs) at several multinationals operating in the UK have told the Wall Street Journal they might face higher taxes and compliance costs once the UK leaves the EU. Mark Wilson, CFO at Aston Martin Lagonda, told the newspaper: “We are concerned about tax changes. We are trying to assess the implications of this but it is very difficult.”

During a CFO networking meeting in the US last week, it became apparent that several CFOs present were concerned about the uncertainty around potential tax changes and say that complying with amended rules will come with an associated cost. Furthermore, moving money between entities across borders could also become more expensive after Brexit. The WSJ explains that: “Current regulations, according to which dividend payments from other EU countries aren't taxed in the UK, could no longer apply after Brexit.” This could mean dividend payments are subject to a 5 per cent tax post Brexit. VAT could also be affected if the UK is no longer part of the EU's value-added tax regime.

However, the UK's rate of corporation tax is due to fall to 17 per cent in 2020, which could offset some of the costs of Brexit, according to one tax expert. Also see this CTMfile article: Do lower corporate tax rates mean economic growth?