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With Brexit vote in doubt, UK firms get ready for no deal

[November 20, 2018] By Kate Holton and William Schomberg

LONDON (Reuters) - British companies began triggering contingency plans to keep their businesses operating if Britain leaves the European Union without a deal, underlining growing concern that political wrangling in London could thwart an agreement with Brussels.

With less than five months before Britain exits the EU, Prime Minister Theresa May won the backing of many firms on Monday for a draft divorce deal as she pursues a charm offensive to get Britain, deeply divided over Brexit, on board.

The Bank of England also offered its support, saying the draft withdrawal agreement would help to safeguard the economy and announcing it would bring forward to Nov. 28 publication of bank stress tests to give analysis of how to cope with a "no deal" Brexit.

This possibility has risen with opposition to May's deal uniting an unlikely group of hardline Brexit campaigners in the Conservative Party, May's Northern Irish allies in parliament and EU supporters.

With no obvious majority in parliament, May risks losing the vote on her draft deal, most likely to be held next month. Such a defeat could open the possibility of Britain leaving without a deal, or even of Brexit being postponed or not happening at all.

Northern Ireland's Democratic Unionist Party, which props up May's minority government, showed its hand late on Monday when it did not vote with the government on the finance bill.

Its Brexit spokesman Sammy Wilson described this as "a political message".

"We had to do something to show our displeasure," he said.

Wilson later told Sky News his party would vote against May's deal if it came to parliament, but in the meantime DUP lawmakers would press the government to change strategy on Brexit, Britain's biggest shift in policy for almost half a century.

The prime minister may have hoped opposition to what is a draft divorce deal with the EU would fade after an attempt to unseat her by Brexit campaigners in her party seemed to be fizzling out.

She could still be hoping some in the main opposition Labour Party will back her draft deal.

But also on Monday those who want her to keep the closest possible ties with the EU in both her Conservatives and the Labour Party forced her government into another embarrassing climbdown by promising to publish an economic impact assessment comparing her deal with staying in the bloc.

STARK CHOICE

May has warned lawmakers they have a simple choice: back her deal or risk ushering in a no deal departure or delay to Brexit.

But few of her critics are accepting those terms.

Doubts over the vote in parliament have pushed companies to start making plans for a "no deal" Brexit, which some have described as the worst-case scenario that offers no confidence in supply lines and trading conditions.

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Britain's Prime Minister Theresa May replies to questions after speaking at the Confederation of British Industry's (CBI) annual conference in London, Britain, November 19, 2018. REUTERS/Toby Melville

Electrocomponents <ECM.L>, which stocks more than half a million industrial and electronics products, said it would spend 30 million pounds ($39 million) to increase its holding of fast-moving lines in Britain and Europe. AO World <AO.L>, an online electricals and white goods group, said it might increase stock to mitigate any friction in the supply chain while Compass <CPG.L>, the world's biggest catering firm, said it was looking to build inventory and vary its menus before Brexit next March.

However, Bank of England Governor Mark Carney told a parliamentary committee that most businesses do not have contingency plans.

The BoE said it would fulfil a request from parliament's Treasury Committee to provide analysis of how the draft Brexit divorce deal "will affect the Bank's ability to deliver its statutory remits for monetary and financial stability, including in a 'no deal, no transition' scenario".

More than two years after Britons voted by 52-48 percent to leave the EU, it is still unclear how, on what terms or even if it will leave as planned on March 29, 2019.

The EU is due to hold a summit to discuss the draft deal on Nov. 25. Some eurosceptic ministers in May's cabinet want her to rewrite parts of it, though EU governments have largely ruled this out.

Justice Secretary David Gauke said talks were now moving on to Britain's future relationship with the EU.

"The withdrawal agreement is essentially done. We have had thousands of hours of negotiations with the European Commission and we have reached a deal where there have been compromises on both side," he told BBC radio.

"The withdrawal agreement meets our key objectives in terms of the integrity of the United Kingdom which is so important to all of us in government, especially the prime minister."

(Writing by Guy Faulconbridge and Elizabeth Piper; Additional reporting by Helen Reid in London; editing by David Stamp)

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