For many business owners, the ever changing state of politics in the UK is a genuine worry. The most recent cause for concern is, of course, Brexit. We all should be wary of what this sudden departure from the European Union might mean for the future of our businesses. From employers migrating to other countries to the strength of the pound, readers often write in asking for advice on what might happen. This is a quick look into what Brexit might spell out for your company.
The initial concerns of Brexit
The resilience of business in the face of the referendum vote was one of the big economic surprises of last year. The Treasury, as well as many leading economists, had predicted an immediate sharp slowdown in the event of a Leave vote. It didn’t happen.
There was a small wobble, with some employers deferring decisions for a few weeks, but consumers barely blinked. Confidence quickly returned.
It shouldn’t be like this. Economic theory teaches that business leaders hate uncertainty and will invest only with good visibility. Yet business leaders have largely given two fingers to that theory. The Brexit vote made them pause for a few weeks on hiring intentions and capital spending, but they soon shrugged off their doubts. In America the Trump victory was greeted with similar business calmness.
The role of the Bank of England
UK business investment as a proportion of GDP has dipped from 10 per cent to 9.5 per cent in recent months, but it is comfortably above the low point of 8 per cent in 2011.
The Bank of England, which monitors the investment intentions of business leaders, has also found a growing confidence to sign off on purchases of plant machinery, IT and research and development. In services and manufacturing, sentiment has improved over the past year.
It has been a similar story with employment plans. Hiring may have cooled for a short while after the referendum, but it has stormed back since. Demand for staff in the UK reached a 21-month peak, according to the Markit/REC barometer this week.
Simon French, chief economist at Panmure Gordon, is sceptical that the hung parliament and political uncertainty by itself will derail the economy. Belgium had no government for 15 months in 2010-11, he pointed out, but its economy at the time outpaced the UK, Germany, France, Italy, Spain and Switzerland. “It didn’t seem to alter their growth rate at all,” he said.
He also argued that with the prime minister desperate to hold a government together, there may be a return of pork barrel politics, which should at least provide a fiscal boost. A softer Brexit, which the election now points to, might also soothe business worries.
The harsh truth
The value of the pound during the referendum
But the real truth of the matter is, no one is still quite sure what Brexit will mean for businesses in the long run. There are no other models of comparable nature to look to for a forecast. Many will speculate about the terrible possibilities but it is quite possible the fall-out will not be as severe as we might first expect. If you have any concerns specific to your company and would like advice please do get in touch via the contact page.