Brexit Brexit effect on UK economy may be worse than thought, says CBI
Survey finds majority of factory owners have cut investment, as insolvencies hit six-year high
A wave of corporate insolvencies, company profit warnings and a gloomy forecast of manufacturing investment over the next year has sparked concerns that Brexit uncertainty will weigh on the UK economy more than previously estimated.
A survey by the business lobby group the Confederation of British Industry (CBI) found that the prospect of leaving the EU’s customs union and single market without a deal had led a majority of factory owners to cut back investment for the coming year.
With fewer than 10 days before the Brexit deadline of 31 October, respondents to the survey said they were planning to scale back their purchases of new machinery and IT equipment over the next year at a rate not seen since the 2008 financial crisis.
Meanwhile, the number of companies going bust in the last three months jumped 35% on the previous quarter to the highest level since 2013. Analysis of official insolvency figures by the accountancy firm KPMG found that the construction industry was the worst affected, putting it just ahead of the retail sector as the source of most corporate insolvencies in 2019.
The hotel group Whitbread, building supplies firm Travis Perkins and car dealer Pendragon also unveiled profit figures dented by customers’ Brexit fears.
Whitbread said business bookings were down as companies reined in costs ahead of the Brexit deadline while Pendragon lost sales as consumers cut back on buying big ticket items, including cars.
Both the construction and manufacturing sectors have entered a prolonged recession, leaving the services sector to keep the economy afloat over the last year.
Speaking to the Guardian, the shadow chancellor, John McDonnell, said the latest figures showed that Brexit uncertainty would have long-lasting effects on most companies, but especially manufacturing firms after years of low or zero investment in their businesses.
“The Tories’ disastrous mismanagement of our economy and their botched Brexit process has undermined our manufacturing base. Along with the mismanagement of our public finances, the reputation the Tories falsely claimed for economic competence has been completely shot. They are seen for what they are: a group of incompetent blusterers,” he said.
The CBI said Brexit uncertainty, shrinking order books and a slump in global trade were blamed for the worst outlook in 10 years for the manufacturing sector with the car industry and transport equipment sectors cutting back at the fastest rate.
Business optimism across the industry was also affected, hitting its lowest level since the referendum vote in 2016, according to the CBI’s industrial trends survey, while optimism about exports for the year ahead deteriorated by the greatest degree in 18 years.
Tom Crotty, the group director of petrochemicals group Ineos and chair of the CBI’s manufacturing council, said it was concerning that “manufacturers’ investment intentions across buildings, machinery and skills are at their worst since the dark days of the financial crisis”.
He said the possibility of a no-deal Brexit still hung over the industry, preventing companies from making decisions to retool their factories or spending money on training staff.
The gloomy outlook follows months of fruitless lobbying by manufacturers for the government to agree the closest possible alignment with the EU as part of any Brexit deal.
More than half of all UK goods are exported to the EU’s 27 other members, excluding gold, and manufacturers have consistently argued that higher barriers with the EU in the form of tariffs or customs checks would hit their profits.
However, the government has pressed ahead with a cleaner break from the single market and customs union run by the EU, leaving only Northern Ireland inside the customs union for the purposes of trade.
The survey of 258 manufacturing firms found that firms were more downbeat about their prospects in the three months to October than in the previous three-month period.
Firms’ expectations for investment in buildings in the next year reached a balance of -44% while investment in plant and machinery covering the next 12 months dropped to a balance of -34%. Training budgets were cut to leave the balance at -28%.
The CBI said its survey, which offsets the number of respondents saying they plan to expand against the number that say they plan to cut back, revealed that all three balances were at their weakest levels since the financial crisis.
Adding to a string of figures indicating that industry was in the midst of a long recession, the CBI said job losses were accelerating at the fastest rate since 2010, adding that firms were anticipating an even sharper increase in layoffs the following quarter.
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