With Conservative Party conference over, focus returns to Westminster, and to Brexit. And UK business leaders are becoming increasingly concerned.
Stanford and Nottingham universities have teamed up over the past year, with the help of the Bank of England, to track the views of 2,500 chief executives and chief financial officers towards Brexit negotiations. They published the first set of results from this survey last week, which showed that while there is unlikely to be a sharp fall in investment over the short-medium term, the Brexit shadow continues to hang over businesses.
The survey, titled the Decision Makers Panel, found that business leaders predicted lower sales growth, modest increases in employment and weaker price rises over the next year. Brexit was also described as the “main concern” for 12 per cent of respondents, while 27 per cent stated it was one of their “top 2 or 3 sources of concern”. Similarly, 76 per cent held negative/very negative personal views towards Britain’s decision to leave the European Union.
Source: Decision Makers Panel
Despite the negative headline figures, the majority of those surveyed (79 per cent) still said they were not planning to relocate parts of their business abroad following Britain’s planned departure from the EU in March 2019. 67 per cent of respondents also said that Brexit would have no impact on investment.
Source: Decision Makers Panel
On a sector by sector basis, companies in real estate, wholesale, and retail were most concerned and less willing to commit to additional investment following recent figures showing footfall in shopping centres declining and business rates rising for some. Similarly, agri-food, construction and haulage reported to be adversely affected by a weaker supply of migrant labour across the past 12 months.
The Bank of England’s chief economist, Andy Haldane, said the new data was a “key source of information for the Monetary Policy Committee” and would help improve the bank’s understanding of the economy. For investors, the survey’s findings may already align with existing concerns. However, it should also provide a good understanding of what sectors to focus upon while providing reassurance that investment opportunities will continue to exist as businesses remain committed to existing UK operations.
What are the latest political developments with Brexit?
Last week’s survey results showed concern among business leaders has been growing over the past year, and it’s unlikely that political developments in recent weeks will have provided much reassurance.
Boris Johnson has dominated the headlines following the publication of his 4,200 word essay in The Telegraph whereby he appeared to contradict many of the points set out in the Prime Minister’s Florence speech. He added to this by outlining his own personal “red lines” on Brexit in The Sun, raising further concerns over the Prime Minister’s ability to set out a clear Brexit strategy. The Financial Times reported that Johnson now views himself as “the godfather of Brexit”, yet his calculated attempts to rock the boat have done little to boost his popularity among Conservative colleagues. There are even suggestions that his behaviour, described as “self-serving” and “indulgent” in some of the papers, will feature on the agenda at the party’s post-conference debrief due to take place next Wednesday.
“If the last month is anything to go by, it will remain essential for investors to remain up-to-date on who holds the power as Brexit talks resume, and on what impact this could have on current or future investments”
Alongside the very public division between Theresa May and Boris Johnson, there have been growing reports of the power struggle between one of the government’s most senior civil servants in the Brexit team, Oliver Robbins, and Brexit Secretary David Davis. Politico reported last month that there’s been mounting tension between the two, with Davis reportedly feeling threatened by Robbins’ direct access to the Prime Minister and his growing influence on the talk’s progression. This supposedly culminated in Robbins being moved out of the Brexit department late September, and transferring to the Cabinet Office as the Prime Minister’ Chief Europe Adviser.
This may all seem like political squabbling to some, but it does provide an insight into who holds the power balance in Whitehall as Brexit talks enter the next stage.
When do talks continue?
The fifth round of Brexit talks have officially begun this week, before leaders of all 28 member states meet for a summit on October 19-20. This next round is due to focus on Britain’s future relationship with the EU while also beginning to set out the nature of a proposed transition period.
However, there appears to be little confidence in Brussels that any of these agenda items will be discussed when talks resume. Michel Barnier, the EU Commission’s chief negotiator, told MEPs last week that “we have not yet achieved sufficient progress to undertake in full confidence the second phase of negotiations”.
Although Mr Barnier commended the Prime Minister for her remarks in Florence, clarifying the government’s position on citizens’ rights and making explicit the request for a transition, he said negotiations had not yet reached a stage where parties could begin discussing any UK-EU “implementation phase”. He also stressed there were still “serious divergences” over the financial settlement, warning that EU taxpayers should not have to foot the bill for the UK’s departure in 2019.
How does this affect investors?
The Bank of England’s recent survey results show that despite members of the business community having concerns over Brexit, the majority remain intent on planning around the issue and not letting it interrupt their investment plans over the next two years.
However, if the last month is anything to go by, it will remain essential for investors to remain up-to-date on who holds the power as Brexit talks resume, and on what impact this could have on current or future investments. This will be extremely pertinent over the next month as Theresa May meets with foreign leaders at the European Council summit and attempts to build confidence around her strategy for Brexit.
Boris Johnson also looks to have avoided the chop (for now) and while he may have eventually given his support to the Prime Minister in his conference speech, his unpredictable nature means he remains a force to be reckoned and will continue to have influence over the direction of negotiations. Similarly, the shake up within Whitehall may have settled David Davis’ fears that he was losing grip on the negotiations, however, the power struggle between him and Robbins appears unlikely to disappear any time soon.
The content of the next round of talks will be extremely important for the UK investment community given the focus on a transition deal. Last week’s survey indicates that a majority of businesses remain committed to the UK. However, as we get closer to 2018 and business planning for next year begins, the outcome of this round of talks could be crucial to unblocking any existing investment plans, updating any changes in personnel or supply chains, while ensuring that any potential risks are avoided as the UK begins to make plans for life after March 2019.
There’s no doubting that the pace of politics is picking up and the stakes are getting higher. The key now for investors is keeping up to speed with what’s going on.