News
Julia Irvine 17 Mar 2017 10:05am

Article 50 fears put brake on business investment

The UK business community has been deeply unnerved by the idea of prime minister Theresa May’s triggering of Article 50 and starting the negotiations to leave the European Union, according to ICAEW’s latest economic insight

As a result, the 1,000 chartered accountants working in senior positions in different industries across the UK who contribute to ICAEW’s business confidence monitor have revealed that their companies are putting the brakes on business investment.

The annual investment figure is now set to contract by 1.9% in 2017, indicating that businesses are not prepared to invest in their long-term growth at the moment. This is having an impact on capital investment – which is experiencing the slowest growth for three years – and job creation.

Although employment hit an all-time high in the fourth quarter of 2016 and unemployment stayed under 5%, ICAEW believes that the growth in private sector employment will fall from 1.4% in 2016 to 0.6% in 2017. The unemployment rate will rise, from the current 4.8% to an average 5.1% in 2017.

The Institute also warns that real wages will fall for the first time since 2013 as rising inflation starts to bite. The consequent squeeze in household spending will impact on UK economic growth which has remained positive in recent years largely on the back of domestic consumer demand.

Indeed, ICAEW’s forecast for economic growth in 2017 currently stands at 1.6%, down 0.4% on Q4 2016.

ICAEW director of business Stephen Ibbotson thinks that chancellor Philip Hammond missed a major opportunity in his recent Spring Budget to help drive growth in the short term.

“It appears Philip Hammond has opted to defer larger economic policy announcements until the autumn, which does not help businesses which are currently experiencing low confidence due to a lack of uncertainty about their role in a post-Brexit landscape.”

He urges the chancellor to focus on long-term projects that drive productivity and enable businesses to flourish even though they are working in “a landscape that is yet to be explored”.

Government, he adds, need to set realistic export targets and provide funding, incentives and support that will enable businesses to take advantage of global opportunities once Brexit negotiations have begun.

Topics