Published July 1, 2022, 7:01 AM
While some of the economic impact of Brexit is still up for debate, there is one indicator that has undoubtedly taken the shock of leaving the European Union. This is an investment in a business. Data released on Thursday by the UK Office for National Statistics (ONS) confirmed a further fall of 0.6% in the first quarter of 2021. The UK is still far from returning to pre-pandemic levels, knowing business investment is 9.2% lower than estimated. was in the fourth quarter of 2019.
“This is clearly a UK economy lagging behind the rest of the G7 and growth prospects are not good. A lot of people have the word “recession” on their lips, says Brian Hilliard, an economist at Société Générale, for whom it is “reasonable to think that this weakness is related to Brexit.”
58 billion deficit
The business investment curve over the last ten years is telling. It grew until the referendum in June 2016, then stagnated for several years until the pandemic hit. Simon French, managing director of Panmure Gordon, estimates a £58bn shortfall in British investment. “We extrapolated this figure, taking into account the pre-Brexit trend and the evolution of business investment in the US and EU,” he explains.
Uncertainty is the first factor that played against investment decisions. “There have been many ups and downs in the industry,” said Seamus Nevis, an economist with Make UK, which represents the industry. Companies overstocked because of the No Deal threat, then came the pandemic. Their resources for investment are exhausted. »
A trade agreement signed with the EU in late December should have cleared the horizon for producers, but Covid has exacerbated the difficulties. In a note, analysts at Oxford Economics note that it is the sectors most affected by the pandemic that are reducing investment.
This applies to the hotel and restaurant business, which lags behind the pre-crisis level by 35%, as well as transport – by 47%. This figure reflects both the aircraft industry, which has suffered from falling demand, and the automotive industry, which has been weighed down by a shortage of semiconductors.
During a House of Commons hearing, Bank of England Governor Andrew Bailey cited logistical disruptions as one of the reasons companies are delaying investment. Not to mention that the war in Ukraine has created a new source of uncertainty. “There is a well-established link between uncertainty and investment,” he said.
Role of labor shortage
Labor shortages may also play a role in this investment weakness, he says: “The proportion of companies saying they are not investing because of labor shortages is exceptionally high. »
For the British government, this slowness is all the more disappointing as in April 2021 it created exceptional depreciation over two years to restart investment. But there are no results, so the Ministry of Finance recently began consultations on replacing this instrument. The CBI, the main federation of employers, is calling for this tax benefit to be made permanent. “The window to avoid a recession is narrow. Inaction this summer will lead us to stagnation in 2023,” she warned.