Bri­tish com­pa­nies ab­sorb Brexit shock

Kuwait Times - - BUSINESS -

Richard Bunce says he felt sick when vot­ers de­cided to take Bri­tain out of the Euro­pean Union in June, forc­ing him into an emer­gency re­view of his firm’s ex­pan­sion plans. But six months on, or­ders are strong and a new growth plan is in place, ac­cord­ing to Bunce, man­ag­ing di­rec­tor of Mec Com Ltd which sells de­vices to pro­tect against power surges to clients such as Siemens and Al­stom.

Far from the “pro­found and im­me­di­ate eco­nomic shock” pre­dicted by Bri­tain’s fi­nance min­istry in the event of a vote for Brexit, the econ­omy has, so far, barely slowed. Bunce ex­pects tougher times. But like many other ex­ec­u­tives try­ing to push their Brexit wor­ries to one side, he in­vested nearly half a mil­lion pounds on a new laser-cut­ting ma­chine over the sum­mer.

Now he plans to spend an­other 750,000 pounds ($932,000) on ro­botic metal-work­ing equip­ment at Mec Com’s plant near Stafford, a town 135 miles (217 km) north­west of Lon­don, af­ter land­ing a big con­tract with a Bri­tish food pro­cess­ing firm. “We be­lieve that the op­por­tu­ni­ties we have got will, one way or an­other, find a way around Brexit,” Bunce said.

To be sure, what Brexit means is far from clear. Bri­tain is due to be­gin its two-year di­vorce process with the EU early next year. Agree­ing its new re­la­tion­ship could take a lot longer.

Bunce is tak­ing pre­cau­tions in case his firm ends up fac­ing tar­iffs on its ex­ports to the EU. He re­cently trav­elled to Ro­ma­nia to dis­cuss the pos­si­bil­ity of ex­pand­ing his com­pany’s ex­ist­ing unit there in the event of a “hard” Brexit. “If that hap­pens then we would need to find a way to switch very quickly, but as things stand we are plan­ning for more UK busi­ness,” he said.

In­vest­ments planned

Many other com­pa­nies seem to be tak­ing a sim­i­lar ap­proach, in­clud­ing tech­nol­ogy gi­ants Face­book and Google which have an­nounced plans to cre­ate jobs in Bri­tain in re­cent weeks. Ac­cord­ing to of­fi­cial data, busi­nesses in­creased in­vest­ment in the three months af­ter the ref­er­en­dum. Man­u­fac­tur­ing body EEF says the sec­tor is its most up­beat in a year and a half, helped by an ex­port-boost­ing fall in the pound since the vote, and in­vest­ment and hir­ing plans are up.

In con­struc­tion, of­fice build­ing has slowed but some com­pa­nies plan to ramp up home-build­ing next year. A sur­vey by IHS Markit showed growth in the con­struc­tion sec­tor hit an eight-month high in Novem­ber. Economists are now rais­ing their pre­dic­tions for Bri­tish eco­nomic growth next year, af­ter many of them ini­tially warned June’s vote would quickly cause a re­ces­sion.

The Bank of Eng­land in Novem­ber made its big­gest ever growth up­grade, say­ing the econ­omy would grow by 1.4 per­cent in 2017, up from a fore­cast of 0.8 per­cent it made three months ear­lier.

Some in­vestors think that even this looks too cau­tious. Per­ci­val Stan­ion, head of multi-as­set funds at in­vest­ment

firm Pictet, pre­dicted growth of nearly 2 per­cent in 2017. “The ex­pec­ta­tions of a col­lapse in the UK were mas­sively over-pes­simistic,” Stan­ion said, blam­ing the pro-EU views of many economists for skew­ing their fore­casts. He said su­per­mar­kets and other re­tail­ers would prob­a­bly ab­sorb much of the in­fla­tion­ary hit caused by the fall in the value of the pound, rather than pass it on to cus­tomers.

For now the BoE - which is help­ing the econ­omy with its mas­sive stim­u­lus pro­gram - is wait­ing to see who is right: the pes­simistic in­vestors who have pushed down the value of the pound by 13 per­cent since June or the coun­try’s con­sumers who have car­ried on spend­ing. Gert­jan Vlieghe, one of the BoE’s in­ter­est-rate set­ters, said he be­lieved Bri­tain was set for a “slow­mo­tion” slow­down.

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