UK businesses planning to put the brakes on investment

UK businesses are planning to scale back their investment in response to the post-referendum uncertainty about future demand and the weaker pound pushing up costs, according to two reports released on Monday.

Manufacturers’ organisation the EEF said that the EEF/Santander Investment Monitor, conducted in March and again in August to assess any impact from the Brexit vote, shows that investment by UK manufacturers remains stable in the short term. But over the next two years 60% of manufacturers are planning to spend the same or less on plant and machinery, up from 54% in 2015 and 51% in 2014.

The proportion of manufacturers spending a higher percentage of their business turnover - 25% or more - has also fallen by half, to 5% in 2016 from 10% back in 2014.

Lee Hopley, chief economist at the EEF, commented:

“Fears of an immediate collapse in business investment appear to be unfounded for now. UK manufacturers have been investing at a healthy pace in recent years and while that rate of increase wasn’t going to continue forever, keeping up with customer needs and the competition is ensuring that investment stays on track for many.

“But, the spike in political risk should not go unnoticed. There is caution amongst businesses, which will inevitably make it more difficult to get big decisions across the line. It’s over to the Autumn Statement now to press ahead with policies that further enhance the UK business environment for spending on modern machinery and increasingly important intangible investment.”

The Institute of Chartered Accountants in England and Wales (ICAEW) also called for Chancellor Philip Hammond to “give businesses more reasons to be optimistic” in the Autumn Statement.

The latest ICAEW UK Business Confidence Monitor (BCM) showed that firms are preparing for a slowdown in profit growth and domestic sales in the next 12 months.

Exports are expected to accelerate thanks to the decrease in sterling, but overall the share of businesses that feel less confident about their economic prospects over the next 12 months remains greater than the share of those expecting conditions to improve.

Michael Izza, ICAEW chief executive, said:

“The Chancellor should be under no illusion at the pressure UK businesses are experiencing. Inflationary burdens are pushing up costs but companies know that customers will not accept higher prices. As a result, businesses are planning on slowing investment, taking on new staff and Research and Development in 2017. Sluggish growth means a slowdown in tax and VAT revenues so Government will need to start acting more like a business and utilising every asset it has to ensure the best return.”