Media hype about market uncertainty may make for good headlines but the danger is that it can be self-fulfilling.
The UK’s EU referendum vote in June and the election results in the US last week have both sent commentators into a frenzy of speculation, much of which has borne little relation to actual economic conditions post-Brexit.
While there’s no doubt that these are real and significant political shocks, the landscape has changed and businesses have to adapt accordingly. But change brings opportunities as well as challenges. The last thing we should do is talk ourselves into a slowdown.
Fallout of Brexit
Research by Hitachi Capital UK shows a third of British companies have abandoned £65.5 billion of investments since the EU referendum.
The study, in conjunction with the Centre for Economic and Business Research (CEBR) looked at the impact of Brexit on British businesses to understand why investment has slowed since the vote to leave in June.
The research finds that nearly half (42 per cent) of large companies and medium-sized businesses have cancelled or postponed investment plans post-Brexit.
Whilst 23 per cent of small companies have had to put investments on hold, medium-sized companies’ investment decisions are the most sensitive to Brexit-related factors with 44 per cent postponing or delaying further investment.
External factors
Over a fifth (22 per cent) of the senior decisionmakers surveyed from 1015 British companies cite the fall in the pound as one of the reasons behind their decision to stall or abandon investments.
Uncertainty over the UK’s future membership of the single market is listed by 21 per cent as another reason for putting investments on hold post-Brexit vote.
Additionally, a further 21 per cent have stated concerns over the UK’s domestic-economic health following the referendum as a driver for their own investments slowing down. These external factors cannot be left unchecked.
Need for clarity
While the research shows that a third of British businesses have abandoned investments post-Brexit vote, three quarters of businesses would resume with investments if uncertainty around the future of the UK’s access to the single market is resolved.
We need to remember that we are in a strong position when it comes to ensuring that the UK negotiates the best possible trade deals.
Exports from the EU to the UK totalled £290 billion in 2015, firmly cementing the UK’s place as a crucial trade partner. And access to the single market is different to membership of the single market.
Although the EU bloc has historically been our largest trading partner, accounting for 44 per cent of exports, the remaining 56 per cent is outside the EU and worth over £286 billion.
We know that more and more demand will be generated outside of Europe and, looking ahead, we in the UK must ensure that we are well placed to capitalise on the opportunities that the wider world presents us.
This sends a clear message from businesses to the UK government – provide clarity and act quickly to instil confidence.
Financial confidence
The government must provide clearer direction and assistance to help UK business understand the best ways to finances their growth without putting a strain on working capital.
This is especially important for SMEs, which are more vulnerable due to their size and can’t afford to stall deals.
Raising the profile of alternative forms of funding and the provision of simple government incentives to stimulate investment will remove the inactivity created by uncertainty and will create conditions for real growth in the economy.
Business leaders
Whilst politicians need to negotiate the way through Brexit, businesses cannot be on the back foot, waiting for the air to clear.
While the policy makers must move to a decision quickly to limit uncertainty, businesses cannot let their confidence falter as it is businesses, rather than politicians, that are the real drivers of the economy.
Robert Gordon is CEO of Hitachi Capital.
Further reading on business planning
