As Brexit negotiations progress, both between the EU and the UK and between different factions within the British government, it becomes clearer that nothing is clear at all. There is no consensus on what kind of customs relationship the UK should have with the EU after Brexit – a 'streamlined' union, a partnership or another model? – and there is no agreement on what the Irish border with Northern Ireland will look like either. While the Brexit agreement is most definitely a work in progress, the uncertainty isn't helping UK companies maintain clear strategies for continuing their normal operations and planning for these in terms of cash and working capital. Recent reports give a mixed picture of economic and business sentiment in Britain.
UK businesses most optimistic since vote to leave
This report by Grant Thornton puts UK business optimism at its highest level since the EU referendum. It found that 58 per cent of businesses expect an increase in revenues and 38 per cent expect to take on more employees over the coming year and more businesses expect to invest in buildings, machinery and plants. Fewer British businesses, however, at only 17 per cent, expect their exports to increase in the next 12 months. Grant Thornton's Robert Hannah commented: “Businesses around the world have started the year on an optimistic footing, and many of the global economic fundamentals appear to validate their enthusiasm. UK businesses are at their most optimistic since the historic vote to leave the EU nearly two years ago, with confidence boosted by signs that a deal on Brexit looks increasingly likely and the recalibration of the Pound over recent months offering another sign of confidence in the UK economy.”
Brexit not good for business confidence
This report on manufacturing output in the UK – the IHS Markit/CIPS UK Manufacturing PMI – is less optimistic and shows that, although manufacturing production has been rising for the past 21 months, the rate of expansion dropped to a 17-month low in April 2018, indicating a slower rate of expansion for output, new orders and employment, in part reflecting a weakening in the pace of expansion of new work from abroad. Commenting on the report, KPMG's Stephen Cooper said: “The implications of the postponed US steel tariffs will also be in the back of manufacturers’ minds. Trade wars are never welcome and whilst it’s helpful that the decision has been delayed, this is another example of uncertainty, with other geopolitical risks such as Brexit, which is not good for business confidence. So UK manufacturers, now more than ever, need to manage these risks carefully and be mindful of the implications they may have on their working capital.”
CTMfile take: Both these reports paint a mixed picture and they can be cut and diced to reflect what you want to believe - there is business optimism but only 17 per cent of UK businesses expect their exports to increase. And although manufacturing output has expanded in the past two years, this growth has slowed to its lowest point since the Brexit vote.
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