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Weakness in business investment reflects Brexit uncertainty, says accountancy chief

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Weakness in business investment reflects Brexit uncertainty, says accountancy chief

Business investment has “dampened” as entrepreneurs are left in the dark over Brexit, a new analysis has revealed.

The study, published by the Institute of Chartered Accountants in England and Wales (ICAEW), looks at the outlook for economic growth in the UK.

It comes after the accountancy regulator cut the UK’s economic growth forecast in 2019 from 1.5 per cent to 1.1 per cent, suggesting that “manufacturing shutdowns” and “no-deal Brexit stockpiling” has hurt the economy’s output.

Business investment has also slowed in the second quarter of 2019, falling 0.5 per cent compared to the three month period before.

This represents a cut in investment in five of the past six quarters, with the ICAEW suggesting that the outlook for business growth depends on the way the UK departs from the EU. The regulator added that even 2019’s Q1 “surprise increase” could be attributed to factors other than a strong economic performance, such as the introduction of a new accounting standard for companies.

Commenting on Brexit and business growth, the regulator said an agreement would not entirely eliminate uncertainty over the future trading relationship with the EU, but is likely to boost confidence.

“The weakness of business investment is particularly striking against a backdrop of sluggish economic growth, and reflects Brexit uncertainty. After the 2008 recession business investment recovered, but since 2015 it has stalled and gone into reverse,” said Michael Izza, Chief Executive of ICAEW.

“While the overriding priority for the government must be to get a good deal, an investment boom is unlikely even if the UK secures an ‘orderly’ departure from the EU.”

Highlighting that a withdrawal agreement would not “eliminate uncertainty over the future UK-EU trading relationship”, Mr Izza added that “structural issues mean firms are more likely to spend money on labour than capital”.

To view the Q3 Economic Forecast in full, click here.

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