November 16, 2018 / 3:26 PM / 25 days ago

UK business backs May's Brexit deal but plans for the worst

LONDON/PARIS (Reuters) - UK business lined up to help Prime Minister Theresa May sell her draft Brexit agreement but continued to plan for Britain to crash out of the European Union without a deal as May fought for her political survival on Friday.

“This agreement is only a draft,” Rolls Royce Chief Executive Warren East told BBC radio. “We are going to continue with our contingency plans and that includes buffer stocks so that we have all the logistical capacity that we need to carry on running our business.”

Europe’s largest aerospace group, Airbus (AIR.PA), is working on the assumption of a no-deal Brexit, according to a staff memo seen by Reuters. “For the teams working on preparing for Brexit we must stay focused and keep working at full speed from a baseline of no deal,” it said.

Manufacturers like Rolls-Royce and Airbus fear that new customs duties and red tape that would kick in without a Brexit deal by March 29 would kill the just-in-time delivery of thousands of parts on which they depend.

FILE PHOTO: Warren East, CEO of Rolls-Royce, poses for a portrait at the company aerospace engineering and development site in Bristol, Britain December 17, 2015. REUTERS/Toby Melville/File Photo

Airbus employs 14,000 people in Britain where it builds most of the wings for its jetliners.

May’s spokeswoman pointed to “strong support from the business community” as her office released statements from major companies including Diageo (DGE.L), the London Stock Exchange (LSE.L) and Royal Mail (RMG.L).

But their influence appeared limited as lawmakers gathered signatures for a confidence vote that could trigger a leadership contest, following the resignation of key ministers in protest at the draft agreement.

Bookmaker William Hill (WMH.L) suspended betting on which year May would leave office and narrowed its odds on a second Brexit referendum to 6/4.

FILE PHOTO: A Rolls-Royce engine of an Airbus A350-900 of Ethiopian Airlines at Fraport airport in Frankfurt, Germany, May 22, 2017. REUTERS/Kai Pfaffenbach/File Photo

Opponents of the agreement with the European Union, which still has to be approved by the British parliament, say it is the worst of both worlds, leaving the bloc with too much power over Britain while taking away its say in making the rules.

The political turmoil is roiling markets, putting sterling through its worst day since 2016 on Thursday although it stabilized on Friday as May clung onto power.

The blue-chip FTSE 100 .FTSE hit a three-week low on Friday, falling 1 percent, while the mid-cap index .FTMC slipped 0.4 percent.

Investment bank Bernstein said the UK market might now be “uninvestable” as the most extreme outcomes were not yet priced into the value of shares.

“We think that the UK market might be ‘uninvestable’ in the specific sense that the near-term movement is likely to be dominated by political forces that, bluntly, are very hard to model,” the bank wrote in a note.

“On a longer horizon uncertainty seems likely to hang over the UK for some time to come.”

One chief executive of a services company that employs tens of thousands likened Brexit to a major business transformation that requires a long-term strategic vision and an acknowledgment that the first few years will be tough before it gets better.

“We have not had that,” he told Reuters on condition of anonymity. “Politicians on all sides think tactically and for the short term. There is no strategic vision, and business is watching on and thinking: ‘Oh my god, where is the plan?’”

“Right now it is an executional mess and I don’t think politicians are equipped to get us through it.”

Additional reporting by Costas Pitas; Writing by Georgina Prodhan; editing by Guy Faulconbridge and Jane Merriman

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