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Business optimism remains high, but there are clouds on the horizon

‘What’s the worst that can happen?’ To a certain generation, those words are indelibly tied to perhaps the most successful advertising campaign of the early noughties – even if nobody quite knew what a cherry-flavoured soft drink had to do with worst-case scenario planning. But businesses are beginning, just beginning, to consider the ‘Dr Pepper’ Brexit scenario.

While optimism among IoD members remains high for the economy this year, the Brexit clouds are still very much on the horizon. Fears that sterling could fall after the triggering of Article 50 – sorry those of you going to the Continent or the US or anywhere over the Easter break – and the resulting inflationary pressure bought by increased costs of imports are very real; the lowest confidence we have seen in the economy since the referendum mirrored the downward spiral in the currency we saw in October.

There are also real concerns that the noises coming out of Brussels about the importance of sequential negotiations could mean that we are forced to agree divorce terms before we can work on a new deal.

This would, obviously, extend the process of leaving the EU and risk the dreaded ‘cliff-edge’ scenario which is making for such lurid headlines. While business leaders recognise the value of a threat to walk away from negotiations more than any other, WTO status for any length of time at all would be a real concern for businesses.

In Brexit negotiations more than any other field of politics, signals are key. So what signals can government send that will ensure business confidence remains high?

The first is a widespread love bombing of the Continent. There are real concerns that EU links could be put at risk even before we leave if ‘hard Brexit’ rhetoric designed for the Daily Mail ends up on the front pages of Die Welt and Aftonbladet.

The second are some key ‘quick wins’ in negotiations – while the EU’s mantra that nothing is agreed until everything is agreed is unlikely to change, the government must open up a dialogue with business that reassures them that progress is being made, even amidst European political turmoil.

And the third signal is perhaps the easiest – a confirmation of the rights of EU nationals already resident in the UK. While the newspapers focus on bankers, our SME leaders are just as reliant on talent from abroad, too.

Business leaders recognise the scale of the challenge to come – but some early signs of progress would convince them that their optimism for the year to come hasn’t been misplaced.

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