Wednesday, 4 July 2018
Business investment intentions drop – Brexit uncertainty could be the cause
After a strong start to 2018, business showed a slight slowdown in domestic markets in the second three months of the year, according to the latest research by the Chamber.
While the shift was marked, creating a 37-point fall in the Chamber’s State of the Economy Index, it is too early to say if it is significant or the beginning of a trend.
What was noticeable in the results of the Chamber’s second Quarterly Economic Survey of the year was a drop in firms’ investment intentions, particularly in the manufacturing sector.
The reason for the decline, however, is not clear. It is thought it could reflect increasing uncertainty over Brexit.
Where investment continues, there are mixed messages about whether it is defensive - with firms seeking to safeguard against future developments – or offensive - such as investing in overseas facilities to negate any potential negative impact of border delays and tariffs that could result from the UK leaving the EU.
The data shows that business confidence in future turnover and profitability is at its lowest for a year, although it remains strongly positive. Firms continue to be more bullish about their own prospects than those of the wider economy, suggesting an optimism bias which must be considered in the overall picture.
Inflationary pressures have softened following highs last year, with fewer businesses anticipating increases in their own prices in the next three months. This could be because the effect of the falling value of sterling against other currencies appears to have run its course.
As per the past few years’-worth of data, the latest survey results show a continued six- to seven-out-of-ten businesses trying to recruit, with 60% of those struggling to find the right staff.
This is a perennial issue, but has yet to translate into significant wage increases or drops in business activity.
Nationally, analysts are downgrading growth forecasts for the UK and the results of this Quarterly Economic Survey, carried out between 21 May and 11 June, might support such predictions.
Scott Knowles, Chief Executive at East Midlands Chamber*, said: “This survey has shown a fall in the State of the Economy Index but it is too early to say whether it is significant among previous fluctuations or indicative of a trend.
“The East Midlands continues to outperform other parts of the country, demonstrating good levels of resilience despite uncertainties. To what extent being a strong player in a weak economy can be deemed positive is open to interpretation.
“From a business perspective, there seems to be a very real risk that we are sleepwalking into Brexit when we should be grabbing the bull by the horns to make sure the future needs of business – the creators of jobs and wealth – are being heeded.
“Businesses cannot afford to sit back and let Brexit happen to them. They must do everything possible to secure their future in a post-Brexit economy by, at the very least, following the advice put together by our Brexit Advisory Group on its checklist.”
The Brexit Advisory Group checklist can be downloaded free at https://bit.ly/2LmZCHZ.
The Chamber’s Quarterly Economic Surveys are being sponsored in 2018 by the University of Leicester School of Business www2.le.ac.uk/departments/business.
An infographic of the results of the Q2 QES can be viewed at https://bit.ly/2KxRgRZ.Back