Since the referendum in 2016, there has been a break in the trend of company investment. Although the Brexit trade agreement that was concluded at the end of the year 2020 established a solid foundation for companies, other concerns, like those relating to Covid and the conflict in Ukraine, have begun to impact investment choices.
Even while some of the Brexit's consequences on the economy are still up for debate, there is one indication that was certainly affected negatively by the country's decision to leave the European Union. This is an investment made by a firm. According to data that was made available on Thursday by the United Kingdom's Office for National Statistics (ONS), a further decrease of 0.6 percent was recorded in the first quarter of 2021. When considering the fact that business investment is 9.2 percent lower than it was in the fourth quarter of 2019, the United Kingdom is still a long way from recovering to the levels it had before the epidemic.
"This is definitely an underperformance of the UK economy compared to the rest of the G7, and the forecast for growth is not favorable at this point in time." According to Brian Hilliard, an economist at Société Générale, who believes that "it is plausible to conclude that this weakness is linked to Brexit," many people are discussing the possibility of an economic recession.
The pattern of corporate investment during the previous decade is rather expressive, as seen by the curve. It continued to rise until the referendum in June of 2016, after which it leveled out and remained mostly unchanged for many years until it hit a low point due to the epidemic. According to estimates provided by Simon French, managing director of Panmure Gordon, the deficit in British investment is around £58 billion. "We projected this number taking into consideration the pattern before to Brexit and the progression of company investment in the United States and the EU," he continues. "We did this taking into account the fact that the United Kingdom would be leaving the European Union."
The first aspect that worked against making investment choices was the presence of uncertainty. According to Seamus Nevis, an economist with the Make UK federation, which is the trade association that represents the sector, "There have been a lot of ups and downs for the business." First, companies stockpiled up because of the possibility of their being "No deal," and then the epidemic struck. They are no longer able to invest due to a lack of resources.
The trade deal that was negotiated at the end of December with the EU was supposed to clear the way for producers, but the Covid then came along to add to the hurdles that were already there. The analysts at Oxford Economics notice in a note that the industries that are being most negatively impacted by the epidemic are the ones that are causing investments to fall.
This is the true for the transportation business, which is down 47 percent from its pre-Covid level, as well as for the hotel and catering industry, which is 35 percent below its pre-Covid level. This statistic represents the predicament of both the aeronautics business, which has been hit hard by the decline in demand, and the automotive industry, which is struggling under the weight of semiconductor shortages.
During a hearing in the House of Commons, the Governor of the Bank of England, Andrew Bailey, said that one of the reasons firms would delay investing was because of disruptions in their logistical operations. Not to mention the fact that the conflict in Ukraine has introduced a new element of unpredictability into the world. He remarked, "There is a firmly proven correlation between uncertainty and investment," which means that there is a strong connection between the two.
According to him, another factor that can contribute to this decline in investment is the lack of available labor: "The percentage of businesses that report they are unable to invest due to a shortage of available employees is far higher than one would expect,"
This sluggishness is all the more disheartening for the British government since in April 2021, it introduced an unusual amortization over a period of two years in order to restart investments. However, the sluggishness continues. But the outcomes have not been satisfactory, thus the Treasury has only lately begun a survey to find a suitable replacement for this instrument. The Confederation of British Industry (CBI), the most influential employers' organisation, has voiced support for making this tax benefit permanent. "The window of opportunity to prevent a recession is small. She cautioned that failure to take action this summer would set us on a course that would lead to a standstill in 2023.