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Brexit prep has cut productivity of UK business, says Bank of England

The Brexit process has cut the productivity of UK companies by between two and five per cent, research by the Bank of England has found.

Much of this drop since the vote to leave the European Union in 2016 is due to falls in businesses’ productivity as managers dedicate several hours per week to Brexit planning, researchers said.

“But we also find evidence for a smaller negative between-firm effect too as more productive internationally exposed firms have shrunk relative to less productive domestic firms,” they added.

The anticipation of Brexit has also “gradually reduced” investment by 11 per cent since the referendum, with the vote generating “a large, broad and long-lasting increase in uncertainty.”

This fall investment was gradual, taking three years to materialise, researchers said. This slow fall contrasted with predictions that it would “fall sharply” in the year after the referendum “and then recover”.

“This delay suggests firms may not respond as rapidly to large shocks that cause persistent uncertainty rather than short-term uncertainty, possibly because uncertainty leads firms to act cautiously,” the researchers said.

The scale and duration of the uncertainty generated by the decision to leave the EU marked it out as unique, the report said.

“Compared to previous uncertainty shocks Brexit is notable for its persistently high level of uncertainty, which sets it apart from other measures of uncertainty which capture immediate responses to shocks that quickly die away.”

By Anna Menin

Source: City AM

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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.

By Danny McCance

Source: Economia

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UK economy shows slowdown signs as recruiters, shoppers turn wary

British employers and shoppers are turning increasingly cautious, indicators showed on Friday, suggesting two of the drivers of the economy during the Brexit crisis are losing momentum.

In a week when business surveys pointed to a contraction in overall output in the second quarter, the latest signals from Britain’s boardrooms and high streets underscored the extent of the slowdown following a strong start to 2019.

That was when many companies were rushing to prepare for the original Brexit deadline in March.

The latest figures showed that the subsequent slowdown in the economy was not just payback for the stockpiling surge.

The number of people hired for permanent jobs via recruitment firms in Britain fell for a fourth month in a row in June, recruitment industry group REC said on Friday.

The figures represented a stark contrast to the robust hiring activity in 2018.

“Brexit stagnation continues to seize up the jobs market as the slowdown in recruitment activity continues,” said James Stewart, vice chair at KPMG which produces the report with REC.

For temporary staff, hiring rose marginally in June, marking the weakest patch of growth since May 2013, when Britain’s economy began to emerge from the after-effects of the global financial crisis.

Britain’s labour market has been one of the strengths of the economy since the 2016 Brexit referendum.

Unemployment fell to its lowest rate since 1975 at 3.8% in the first quarter of 2019, according to official data.

Many economists have linked the jobs boom to uncertainty about Brexit which has made employers favour hiring workers — who can be laid off quickly — over the longer-term commitment of investing in equipment.

But the jobs surge has put more money into people’s pockets which had driven consumer spending, offsetting a fall in investment by many companies.

Data on Friday showed Britain’s high street retailers had a “washout” June, however, as shoppers did not respond to early summer sales discounts.

“We saw retailers discount early on in June, adding further pressure to tight margins, yet they still weren’t able to salvage the month,” said Sophie Michael, head of retail at BDO, an accountancy and business advisory firm.

The survey chimed with another weak reading of retail sales published last week.

The Bank of England has said Britain’s economy probably had zero growth in the April-June period, contrasting with growth of 0.5% in the first three months of 2019.

BoE Governor Mark Carney warned on Tuesday that the prospect of a no-deal Brexit and the rise in protectionist trade policies around the world, led by U.S. President Donald Trump, posed growing risks to the British economy.

Surveys published this week of Britain’s manufacturing, construction and services sectors suggested the economy contracted by 0.1% in the second quarter.

That would be the first fall in gross domestic product since the end of 2012.

A survey published by an employers group showed British businesses turned gloomier, bucking an improvement in sentiment earlier this year.

By William Schomberg and Catherine Evans

Source: Zawya

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The effect of uncertainty on UK business over the past two years

Brexit is the great big British nightmare of the past two years that we can’t seem to be able to wake up from. The ongoing nightmare has been an endless question mark for the entire world. What is more terrifying is that fact that even in the end game of Brexit, when we are still unsure what the British are planning on. They just asked for another extension and the parliament is stubbornly saying a resounding “No” to everything. This climate has had a strong effect on the world, but most of all, it has had an interesting effect on the startups and new business of England.

The big and old are in no hurry to leave

It seems that the biggest companies, financial or otherwise, are in no hurry to get out of Britain. Over the past few years, barely any of the office jobs associated with the big financial companies have moved to the EU. While the companies are still keeping an eye out for the jobs, it seems that they are hoping for something. After all, the outlook on Brexit has been more and more leaning towards people believing it might not happen at all. The latestpredictions made by the bigger players in the financial fields only shows that more and more companies are expecting a more favorable outcome for the business.

So there is no surprise when we find out that the companies are in no hurry to move to the EU. Some of them are taking their chances, hoping that the people and the parliament might change their mind about what is best for Britain. So this leaves them being comfortable where they are, not risking any of the capital they have dedicated to moving, thinking it might be a gamble. This might be good, for now, but there are dangers associated with this. The biggest danger being how much harder and more expensive it will be for these companies to move, once Brexit does happen. In the worst case scenario, it might take them a long time to deal with the fall out of not taking the prudent step and prepping new offices in the EU.

Unfortunately, big companies are not the ones who decide whether Brexit is happening or not. It is the parliament. The sentiment among the smaller scale businesses and potential business owners is that there is a possibility that Brexit might actually happen.

The rate of new business, slowing down

The sentiment is reflected in the simple fact that there are fewer new businesses being founded in the UK then there was last year. The trend over the past few years has been that of growth. More and more startups and new businesses have been founded in the optimistic context of Britain as it has been up to now. Even in 2017, a year after Brexit, the rate of new companies that were being founded was growing. The optimism of the people and the momentum of those who wanted to found new businesses seemed unstoppable at the time. The government took this as a vote of confidence from their people.

Though now, it seems the lack of confidence is finally having the effect that it should have had initially. The number of new businesses being founded in the UK fell, even if by a small amount, for the first time in years. The people who would be founding companies are instead choosing to go the safer route of finding employment with a private company. There are no specific studies currently, but this is an attitude that goes hand in hand with a lack of faith in the future of the economy. The people are saving the money they would be spending on new business because they are expecting to be needing these savings in order to survive in the short and mid-term.

Employment in the private sector has grown, as a result. Some may even believe this to be a positive sign, as the spending of the private sector increases. But this is positive only as so far as the ability of the people to save goes. The people being employed are the people who, in a more optimistic setting, would be spending their resources on starting new projects and businesses, and this is harmful to the economy. The simplest way to think about this is this – private investment has fallen in the UK over 2018. The rate of the fall has also been the most dramatic since the 2003 recession.

This goes to show: while big companies might be paying more money to their employees, there is less money going around in investing in private business. So, even if people are working and companies continue to hire, the country is spending less and it is getting less of a benefit out of its highly educated, highly skilled human capital. The problem lies with the fact that people don’t know what is going to happen. There has been little to no framework created over the past two years, and now, as the deadline approaches and the parliament is having trouble deciding what to do, the people have lost faith.

Lack of faith, lack of business

A safe economy is what leads to investment, especially risky investment. When a society is more or less confident of the future of its county, it is more likely to take risks. Creating a startup and founding a business usually, entail huge risks. There is the risk of losing all of the money you invest in building the startup, and the risk of never getting the clients you need to run the startup. There is the risk of being unable to find employees, as they consider startups to be less safe options in an unfavorable economy. And Britain looks more confused right now than it ever has before.

What is the result? All of this is going to cost the UK economy a lot of money. As large businesses refuse to prepare for the move and new businesses stall in creation, the economy is slowing down. If the no deal Brexit does happen it will be catastrophic for the country. The idea is simple – the day large businesses start letting people go, there will be no space for employment to shift, so the rate of unemployment will rise, dramatically. Savings will have to be dipped int and spending will decrease. Without new businesses to high skills workers, the unemployment rate will not recover for a while. In the end, Britain ends up with a highly skilled, unemployed workforce that is having trouble emigrating simply because Brexit has imposed restrictions on their travel. While some might call this speculation, there are indications that business has slowed down over the past year and that some of the worst predictions might be coming true. Let’s hope not.

Source: Finextra