Growth will be hit
Brexit stockpiling to hit investment over next two years
Adam Marshall: ‘Next Prime Minister must act’ (pic: Terry Murden)
Stockpiling for Britain’s exit from the EU is to hit economic growth as companies hold back on investment, according to a new survey.
The British Chambers of Commerce (BCC) says the unwinding of historically-high inventory levels, coupled with weaker business investment, will weigh on economic activity over the next two years.
Slower growth in 2020 (1%) and 2021 (1.2%) will follow slightly higher growth this year (1.3%) compared to its earlier prediction of 1.2%, driven by the exceptionally rapid stock-building early in the year.
Business investment is forecast to contract at a faster rate in 2019 and recover more slowly in 2020 than expected in the BCC’s previous forecast.
The data is echoed by the Fraser of Allander Institute showing that investment by Scottish firms continued to decline in the second quarter of this year.
The BCC said: “The continued Brexit impasse, including the growing possibility of a no-deal exit, together with the high upfront cost of doing business in the UK and the running down of excess stock, is expected to suffocate investment activity over the near term.”
Inventories have risen ahead of Brexit (pic: Terry Murden)
It says its latest forecast is a “clear warning sign” that the next Prime Minister must set out a clear roadmap for how the political impasse in Westminster can be broken and an agreement reached to prevent further slowdown in the economy.
The Chamber Network is also calling for a strong and clear strategy on the domestic agenda, including urging the next government to use the forthcoming Comprehensive Spending Review to affirm its commitment to delivering major infrastructure projects, such as HS2, that underpin economic growth.
The BCC forecast assumes that the UK avoids a messy and disorderly exit from the EU. Another scenario would lead to revisions in the next forecast.
Adam Marshall, director general, added: “Businesses are putting resources into contingency plans, such as stockpiling, rather than investing in ventures that would positively contribute to long-term economic growth.
“This is simply not sustainable. Business communities expect the next Prime Minister to quickly find a sensible and pragmatic way forward to avoid a messy and disorderly Brexit.”
Scottish economy continues to grow
Investment continued to decline in the second quarter of this year as Scottish businesses remain hesitant in committing to new investment due to the lack of clarity on the economy’s direction, according to the latest Scottish Business Monitor, compiled by the Fraser of Allander Institute.
Mairi Spowage, head of economic analysis at the institute, said: “The slowdown in investment has persisted and the downward trend in exports appears to be disproportionately affecting smaller businesses. Businesses still remain unprepared for a no-deal Brexit and the recent jump in political uncertainty is not going to help over the next few months.”
Professor Graeme Roy, director of the Fraser of Allander Institute, said: “Next week we will find out Scotland’s GDP figures for Q1 2019, which are likely to show a degree of volatility as firms stockpiled in the run up to the potential ‘no deal’ deadline of 29 March.
:Little has happened since then to give Scotland’s business community any confidence that policymakers at Westminster have a credible plan for taking the UK out of the EU that does not involve major disruption to our economy.”