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Danny McCance 27 Aug 2019 12:10pm

UK business pessimistic about economy

The consensus from UK boards is that the combined effects of Brexit, trade wars and consumer slowdown is going to have a negative effect on the UK economy over the next 12 months

More than two-thirds (69%) of respondents from FTSE 350 companies believe that the UK economy will deteriorate in the next year, according to a recent Boardroom Bellweather survey from the Chartered Governance Institute (ICSA) and the Financial Times.

Only 7% expected improvement – a slight uptick in confidence since the end of 2018 when only 2% expected improvements and 81% expected a decline – however still less than pre-referendum, when 24% expected a decline and 13% an improvement.

“The continuing uncertainty about what a post-Brexit Britain might look like, muddled even further at the time of the survey by the Conservative Party leadership contest and differing views with regard to a no-deal Brexit, has undoubtedly contributed to the pessimism that people are feeling,” said Peter Swabey, director of policy and research at ICSA.

Meanwhile, the research found that 40% of respondents thought a no-deal Brexit would be damaging to business, while 40% thought it would not and 20% were unsure.

More generally, 3% of respondents believe leaving is positive, compared to 59% who see it as damaging – down from 73% at the end of 2018 – while the number predicting no change has increased from 28% to 38% since the end of last year.

Swabey suggested that more companies enacting contingency plans might explain why nearly half (49%) of respondents see Brexit as a principal risk and why only 29% have increased inventory in preparation for a no-deal.

However, he noted that the proportion of those considering Brexit as a principal risk has increased since summer 2018 – up from 39%.

“With companies unsure of what trade and non-trade barriers might be in place come the end of the year, it seems evident that they are acting with a certain amount of caution,” Swabey said.

Meanwhile, 51% of respondents expected a decline in global conditions over the next 12 months, while 10% predicted an improvement and 23% thought conditions would stay the same.

“With trade war between the US and China still playing out, over twice as many people now fear a decline [in global economic conditions] than was the case in summer 2018, when just 24% predicted a decline,” Swabey said.

Business optimism in both business and professional services sectors plummeted in the three months to August from -8% to -31%.

The decrease almost matched the decline seen at the start of 2019, according to the Confederation of British Industry (CBI).

Although business volumes stabilised in Q3, businesses expect a decline over the following three months, with respondents pointing to overseas business as a limiting factor.

“UK services firms are operating in a tough environment: activity is sluggish and profits are expected to fall in the coming months. It’s little wonder that business sentiment has plummeted again,” said Rain Newton-Smith, chief economist at CBI.

She described outlook for services companies as “bleak”, pointing to Brexit uncertainty as a dampener on investment and expansion.

“The idea of a no-deal Brexit is clearly weighing down the economy and is affecting businesses both big and small. So the economy can get back on track, the government must re-double its efforts in securing a deal,” she said.


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