Latest figures from the Office of National Statistics show that corporate spending fell by 1.2% during the third quarter of 2018. This means that business investment has fallen for three consecutive quarters for the first time since the financial crash in 2008. The main reason, as suggested by many, is the recent uncertainty regarding Brexit negotiations, as major industries look to invest in other, stable European nations.
Carolyn Fairbairn, the director-general of CBI, one of the UK’s major business voices, said that money was “flooding out” of the UK market due to investors preparing for a no-deal Brexit. Whilst she, like many other business figures, sees the draft Brexit deal currently agreed as “hard-won progress”, some warn the damage is already done. Michael Saunders, a member of the Bank of England’s monetary policy committee, said: “I suspect quite a lot of that is a permanent loss.”
A Deeper Issue
Despite Brexit holding certain investments back, this has been an area where the British economy has routinely struggled. According to data from The World Bank, in 2017, the UK ranked seventh regarding net inflow of foreign direct investment, with Germany ranking fifth and the Netherlands ranked second. In 2010, the UK ranked eighth on the same global scale.
Before a recent upturn in business engagement by Theresa May, many business leaders, both domestically and internationally, feared a British government that did not have business growth at the top of its agenda. The UK equity market has recently been described as “close to uninvestable” due to fears that the upcoming Brexit negotiations could lead to the collapse of the Conservative government. Many investors fear a potential Labour government that would likely raise taxes, even if the current Brexit agreement is signed-off.
These facts, combined with other issues such as the UK’s struggling productivity and skilled work shortages, point to problems in the UK economy that are deeper than Brexit. Whilst the negotiations with the European Union continue to dominate, there are further underlying issues that are slowly coming into focus, evidenced by Chancellor Philip Hammond’s comparatively business-friendly budget.
Hope for the Future
As with many issues on which Brexit has an impact, there are faint signs of a recovery in the future. Whilst business groups such as the CBI struggle to commend the draft Brexit agreement, they have, at the same time, praised the fact that a deal is now on the table. More than anything, businesses want to avoid the no-deal scenario and the thought of a deal that, at least for the short-term, retains free-trade makes the idea of investing in the UK much more palatable.
Bank of England Governor Mark Carney has publicly backed the Brexit agreement, stating that it is “good for investment”. Carney noted that the ability to extend the transition process was a bonus for the stability of the economy. Whilst statements by the Bank of England are viewed with relative caution due to the continued uncertainty, they do indicate potential light at the end of the tunnel, a future post-Brexit stability that will likely see recent investment trends reverse.
Unfortunately, many points of this investment issue ring true with the current UK economic forecast; with an unclarified future ahead, many businesses are streamlining their operations to make sure they are in the strongest shape possible, regardless of the Brexit outcome.
There are a range of cost reduction techniques available and one of the most popular is the use of specialist procurement consultants. Here at ERA, we have helped companies save millions by refining their supply chains in a range of different categories, from distribution to utilities and everything in between. If you are looking to optimise your supply chains before March 2019, get in contact with our experienced team today and see what we could do for your business.