Business After Brexit
It’s now a couple of months since Britain took the brave step to exit the EU. Since that time we’ve seen a new Prime Minister and Cabinet appointed, a volatile stock market and turbulent exchange rates as well as interest rates reach record lows.
Although only few may have predicted this situation at the start of the year, the reality is that the world continues to turn and that this economic environment is the new ‘norm’. The good news however is that British businesses have been fast to react and return to business as usual.
According to the first estimate of the Office for National Statistics, GDP growth strengthened to 0.6 per cent in the second quarter of 2016, although much of that increase in activity was concentrated in the earlier part of the quarter, with a falling away seen in May and June as uncertainty crept in.
Although figures released last month show that the UK economy contracted by 0.2 per cent in the month following Brexit, the latest forecast from the National Institute of Economic and Social Research (NIESR) is that it’s increasingly unlikely that Britain will tip into recession.
Earlier this month the Bank of England also forecast that the economy would narrowly avoid a recession, largely because of its decision to cut interest rates to a new historic low of 0.25 per cent and restart its Quantitative Easing monetary stimulus programme.
With the various initiatives in place to stabilise the economy and confirmation from Teresa May that Britain will leave the EU, we are however seeing more certainty and with it confidence return to the marketplace.
It is also important to also differentiate between Brexit’s long-run impact, and the short term consequences of the vote itself and then any fallout from the negotiations, when they actually begin.
Admittedly, the longer term outcome will be dependent on what deal we obtain from the EU as well as the extent of the new trade agreements we sign with other countries, how migration is managed and the policies that the UK adopts to make it more competitive in an era of self-government.
So how big will the short-term hit be? HSBC’s guess is that the Bank of England will revise its growth prediction to 1.7pc this year, from 2pc, and slash it to just 0.5pc next year, from 2.3pc.
On the more positive side, sectors that were expected to take a hit, including property and retail companies, have shared their results this month and reported ‘normal’ activity and numerous investment projects – essentially business as usual. It seems that the ‘Lehman Brothers moment’ has passed and we should now work to build on the new position.
The financial markets have also coped well and stabilised, the credit supply remains at pre-Brexit levels (though demand is unclear) however the pound’s exchange rate remains the biggest casualty. Although many experts believe it may slip further as it remains overvalued in the new world order, however so far at least it has stopped falling.
As the dust settles from the announcement companies and customers must now embrace the new order and accept the change in order to protect and maintain their customer bases.
Let’s also hope that after the initial shock of Brexit that UK businesses recover to deliver a Nike-style swoosh of recovery as Gerard Lyons, Boris Johnson’s former chief economic adviser has suggested.
As we stand today it’s negativity and fear that has the biggest effect, not an actual reduction in output. So what else should be done? Perhaps a cut to corporation tax, Stamp Duty and/or VAT to encourage business will help bring a feel good factor to consumers. It’s this consumer confidence that is perhaps the most important thing of all.
We should also not look to hide behind Brexit as an excuse for all our ills. The sector in which we operate has a number of challenges including an inability to attract new talent as HGV licence applications have dropped by more than 32,000 in the past five years due to the cost of licence, lack of understanding of the industry and poor industry image.
Work also needs to be done to secure more funding for vocational training, better driver facilities, quicker turnaround of medical queries by the DVLA and a campaign to raise awareness of the benefits of working in the sector. Perhaps money that has previously been allocated elsewhere could be diverted into these areas?
These measures, together with an aggressively pro-business Chancellor and Prime Minister, ought to help stabilise and encourage the economy in the short term. It just then leaves us to build our own trade agreements and to negotiate a longer term position that is right for business after Brexit.