Published Thursday 26th September 2019
Reports from the British Chambers of Commerce (BCC) suggest that investment in British businesses could continue to decline over the next few years. Combined with recent decreases in overall business investment, it sets the country on course for its biggest investment slump in nearly 20 years.
Business investment has been cited as one of the primary reasons behind the lack of UK productivity. Influenced by Brexit and the broader economic slowdown, it presents yet another warning as Britain’s businesses prepare to enter a challenging future.
The UK Business Investment Decline
The business group’s research, released in mid-September, focused on a wide range of issues concerning the future of the UK economy. However, the main headline concerned their expected forecasts for business investment. The BCC downgraded their expectations regarding investment this year, from -1.3% to -1.5%. They also lowered their expectations for 2020, from a 0.4% investment increase to a 0.1% decrease. However, they still expect business investment to rebound in 2021, with a growth rate of 0.8%.
Following on from a decline in investment in 2018, if the BCC forecast comes to pass, it will equal the most prolonged period of sustained decline since the dotcom bubble burst early this century. It will also surpass the investment decline witnessed after the economic crash of 2008.
UK Productivity Post-Brexit
It is worth noting that the BCC economic forecast “assumes a messy and disorderly Brexit is avoided.” The BCC state in their findings that Brexit uncertainty is the primary reason behind their downgraded expectations for the coming years, as businesses divert resources towards no-deal provisions.
Due to the decline in business investment, the BCC also expect overall productivity to grow at a slower rate. If the BCC figures are to be realised, by the end of 2020, the UK will have experienced its worse decade on record regarding productivity growth.
The UK productivity puzzle was one of the economy’s most pressing concerns before Brexit and will remain so after. There are many reasons for the recent downturn in productivity, including the aforementioned business investment. Another cause is the lowering levels of unemployment, fuelled by the short-sighted planning of Brexit-wary firms.
A Challenging Global Economic Outlook
Regardless of the Brexit outcome, the UK government must focus its efforts on improving domestic labour productivity if it wishes to continue competing on the global stage. However, growing concerns inside and beyond the European Union will present further challenges to post-Brexit Britain.
Much of the global economy is expected to see reductions in growth during late 2019 and early 2020. This expectation is primarily fuelled by rising tensions between China and the US, impacting both productivity and consumer demand in both markets. Furthermore, the Eurozone economy nearly stalled in September, leaving business optimism on the continent at its lowest for seven years.
For some, such a scenario may feel like an opportunity. With the EU in need of business and UK consumer demand somehow holding firm, Britain could find itself in a position to offer something to new and old trading partners post-Brexit. However, for such an opportunity to be taken, the country must combat its domestic issues.
Preparing to Succeed After Brexit
In an increasingly competitive yet sluggish global economy, British businesses must do all they can to improve their current business performance to succeed in the future. However, at this present time, many companies cannot find the free capital to invest.
Here at Expense Reduction Analysts, we’ve been helping major UK businesses throughout the Brexit process, helping to create capital through the streamlining of supply chains. Our cost reduction consultants have saved millions of pounds in expenses across a range of industries, by creating effective long-term procurement strategies. By reducing your costs, you can create the money required to assure your firm’s success in a challenging post-Brexit outlook!
If you are interested in discovering what ERA could do for you, why not get in contact with us? Alternatively, see our many case studies, highlighting our work across a range of industries and cost areas.