UK Economy Set to Face Difficult Times Ahead as Investments Wither Amidst Brexit Uncertainty
As businesses use up their stockpiles in preparation for Brexit, the UK economy is forecast to face a growth slowdown similar to when the 2008 great recession hit Britain.
The British Chambers of Commerce in a press release on Monday 17th June 2019, examined the possible and expected impacts on the UK’s economic growth after the Brexit stockpiling frenzy clears:
‘The British Chambers of Commerce (BCC) has today (Monday) released its latest economic forecast, upgrading its growth expectations for the UK in 2019 to 1.3% (from 1.2%). However, the leading business group has downgraded its growth forecast for 2020 to 1.0% (from 1.3%) and to 1.2% (from 1.4%) in 2021.’
Click here to read the full BCC press release.
Britain’s economic growth advanced as a result of businesses stockpiling resources and goods in preparation for a Brexit departure date that was eventually extended by Prime Minister Theresa May. Nevertheless, the strong growth seen in the UK’s GDP figures for 2019 is expected to dwindle in the next two years to come because of gradually diminishing Brexit stockpiles and feeble investment activity.
The BCC has suggested that the contraction rate for business investments is expected to increase during 2019 and pick up slowly during 2020. Investments in UK businesses is forecast to weaken substantially as a result of the Brexit deadlock with the possibility of a no-deal withdrawal from the bloc looming over Westminster, as well as the increase in expenses and costs of conducting business with Britain in terms of tariffs and delays at border checks.
According to the British Chambers of Commerce, UK trade is not expected to have much of an input on its economic growth as exporters encounter a volatile trading environment with uncertainty oozing from the Brexit impasse to a weakening global economy making matters worse for the UK’s economic outlook for the near future. On the other hand, consumer spending is forecast to remain stable as income rates are expected to remain ahead of price increases; also, the rate of unemployment is considered to stay at a low percentage.
The BCC’s recent gloomy outlook of the UK economy for the next few years to come is a cautionary report that urges for the Brexit deadlock to be resolved so that businesses within the UK and across the globe looking to continue trading and working with the United Kingdom can finally navigate a clear route through the Brexit fog. Infrastructure projects such as HS2 and Crossrail are important and the BCC warns need to be prioritized as they could be key in supporting the weakened economy.
What is HS2? HS2 is a proposal for high-speed railway in Britain that would offer direct lines linking Manchester, the East Midlands, Leeds, Birmingham, and London. Some sections were authorized two years ago in 2017 and are on standby for construction to begin, whereas other sections have yet to be approved.
Businesses in the UK now have an inflated stockpile of resources that they can use without needing to place many orders to resupply, however, this slams the brakes on the rate of economic growth. Two months ago, the automotive sector also stopped manufacturing as part of contingency plans to fend off any disorder that could have resulted from the scheduled March 29th Brexit date.
The British Chambers of Commerce’s Director General, Adam Marshall said:
“While politicians are distracted, businesses are left with no choice but to try and prepare for the unwanted possibility of leaving the European Union on 31st October without a deal and transition period. Businesses are putting resources into contingency plans, such as stockpiling, rather than investing in ventures that would positively contribute to long-term economic growth. This is simply not sustainable. Business communities expect the next Prime Minister to quickly find a sensible and pragmatic way forward to avoid a messy and disorderly Brexit.”
“The UK’s low-growth trajectory makes clear that we can’t afford for Westminster to keep turning a blind eye to the domestic agenda. The upcoming Comprehensive Spending Review is an opportunity for the next government to affirm its commitment to support economic growth, including investment in the skills and training system and infrastructure projects, such as high-speed rail and the city regeneration schemes linked to them. Businesses will also be expecting action to alleviate the heavy burden of upfront costs, which stunt growth.”
The BCC’s Head of Economics, Suren Thiru had similar comments in regard to the gloomy forecast for the UK’s economy:
“The deteriorating outlook for business investment is a key concern as it limits the UK’s productivity potential and long-term growth prospects. On the upside, household spending, a key driver of UK economic output, is expected to be supported by relatively low unemployment and positive real wage growth.”
“A messy and disorderly exit from the EU remains the main downside risk to the UK’s economic outlook as the disruption caused would increase the likelihood of the UK’s weak growth trajectory translating into a more pronounced deterioration in economic conditions.”
Click here to read the full BCC’s report.
The enduring uncertainty that surrounds Brexit is crippling business investments which in turn has a domino effect on the future performance of the economy. Marshall also raised the issue that businesses are being forced to spend money on stockpiling in preparation for a Brexit that has shown no signs of what the outcome will be, rather than being able to invest that money in business operations and projects for the future which underpin the growth of the economy. Investments in the UK business sector dropped for all four consecutive quarters in 2018, the lowest levels since the financial crisis.
Kier Group plc set to scale back its workforce by 1,200 jobs after debt issues run the risk of a company shutdown.
The British construction and services company, Kier Group plc, which participates in crucial plans across the UK such as HS2 and Crossrail, is set to reduce its workforce putting over 1,000 jobs at risk as it tackles a host of issues, mainly unsurmountable debt, in an effort to prevent liquidation.
On June 17th Kier Group shares fell to a record low of 1 pound and 8 pence. Kier Group works on billion-pound projects such as HS2, shook the financial markets when it announced that its profits would be considerably lower than had been previously expected.
Brewin Dolphin’s senior investment manager, John Moore said that Kier Group was in a difficult and “dark place”, he went on further to say:
“Kier is in a dark place. At the turn of the year the business set out its financials, trading performance, and future plans as part of its unsuccessful rights issue, only to now say that this information was largely wrong.”
“It has broken trust with investors, which does not bode well. Comparisons will be made with the likes of Carillion and, indeed, Kier has lots of complex long-term contracts and individual subsidiaries which makes for an opaque situation where clarity and stability are desired. Where it goes from here is hard to say.”
Taken from cityam.com.
The UK construction company is scaling back on various aspects of its operations as it tries to combat the risk of collapsing. Some of those efforts involve, cutting down some of its workforce, ceasing revenue payments that are distributed to shareowners for 2019 and 2020. Additional measures could involve the sale of its residential and recycling business operations.
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