Roads lead to Bri­tain: UK still a des­ti­na­tion for Euro­pean firms

As French baker fires up a new pro­duc­tion line and Ger­man gi­ant Müller ploughs £100m into Bri­tain the post-brexit fu­ture looks be­nign,

The Sunday Telegraph - Money & Business - - Front page - re­ports Tim Wal­lace

The scent of freshly baked brioche fills the air. French ac­cents chat­ter to and fro across the room. But this is not a pretty lit­tle Gal­lic boulan­gerie. This is an in­dus­trial es­tate in Mil­ton Keynes where a French bak­ery has just opened a new pro­duc­tion line.

Ev­ery hour 25,000 brioches pour off the shin­ing new ma­chine, the sec­ond in­stalled in this im­mac­u­late, gleam­ing fa­cil­ity.

Brioche Pasquier, still run by the Pasquier fam­ily that once ran a typ­i­cal lo­cal bak­ery, has spent £40m on the site since buy­ing the land in 2014. And in post-brexit Bri­tain, it has plans to spend more.

This bucks ex­pec­ta­tions in terms of UK in­vest­ment.

Brexit raised fears that busi­ness spend­ing – par­tic­u­larly from firms head­quar­tered in other EU na­tions – would slow to a trickle as com­pa­nies turned off the taps and hun­kered down for a re­ces­sion.

Im­me­di­ately af­ter the ref­er­en­dum the av­er­age econ­o­mist thought fixed in­vest­ment would dive by 3.5pc in 2017. Clearly the re­ces­sion has not hap­pened, and now com­pa­nies are re­gain­ing some of their lost con­fi­dence.

Busi­ness in­vest­ment is ex­pected to grow a touch this year in­stead.

This is not a part of the econ­omy that takes kindly to volatil­ity.

In­vest­ment projects do not take place overnight.

Ma­jor or­ders for new ma­chin­ery and build­ings take time to ar­range, de­sign, and con­struct, so there is a lag both in any slow­down and in any ac­cel­er­a­tion. Yet some busi­nesses are con­tin­u­ing to in­vest. Brioche Pasquier planned this line from the start of the project in 2014. But the chang­ing busi­ness out­look has not put bosses off their stride, in­di­cat­ing they are confident in the longer term eco­nomic out­look – an im­por­tant fac­tor, given that they are bet­ting house­holds will be happy to spend more on their premium breads. “We think we will open the third pro­duc­tion line in 2019 or 2020,” says Olivier Ripoche, UK man­ag­ing di­rec­tor, a nephew of the five broth­ers who ex­panded their fam­ily bak­ery into an in­ter­na­tional em­pire. That will fill up the cur­rent build­ing, but he has se­cured land next door to ex­tend the fac­tory. “We have the land close to the fac­tory, and we can copy and paste what we’ve got here. We can have six pro­duc­tion lines in this fac­tory,” he says, speak­ing in very good Eng­lish, though he jokes about his ac­cent. “And when those six pro­duc­tion lines are full we will build an­other fac­tory.”

It is not alone. Müller, the Ger­man dairy gi­ant, has com­mit­ted to in­vest £100m in three sites in Shrop­shire.

The idea is to de­velop, make and mar­ket a new range of

Uk-made prod­ucts.

It al­ready makes goods in the UK but wants to re­duce the in­dus­try’s re­liance on im­ports, some­thing which an in­creas­ing num­ber of com­pa­nies are con­sid­er­ing since the fall in ster­ling made im­ported goods more ex­pen­sive. That is true for Brioche Pasquier, too. It en­tered the UK mar­ket by im­port­ing its baked goods from France, but when the fi­nan­cial cri­sis struck and the pound tum­bled, its prof­its suf­fered.

By build­ing its fac­tory in the UK and us­ing lo­cally sourced in­gre­di­ents, it has been more in­su­lated from the lat­est fall in ster­ling. Com­pa­nies from out­side Europe are also mak­ing new in­vest­ments. Ear­lier this month US air­craft man­u­fac­turer Boe­ing started work on a new fac­tory in Sh­effield, its first in the UK. It se­lected the site in Fe­bru­ary for a £20m plant mak­ing com­plex parts for ac­tu­a­tors, which move the flaps on aero­planes’ wings.

That said, in­vest­ment is not boom­ing ev­ery­where. Some com­pa­nies are pulling back in­stead.

French bank Credit Agri­cole, for ex­am­ple, is mov­ing trad­ing jobs out of the UK and over to Paris, in a de­ci­sion not un­ex­pected when France is court­ing bankers in an ef­fort to move them ahead of Brexit tak­ing place.

Over­all in­vest­ment lev­els are es­sen­tially flat. There has been no col­lapse, but no surge ei­ther.

Man­u­fac­tur­ing in­dus­try group the EEF sur­veys its mem­bers and has found hints of a re­cov­ery in sen­ti­ment, but only on a mod­est scale.

Lee Ho­p­ley, the group’s chief econ­o­mist, says she sees few new fac­to­ries be­ing built. In­stead com­pa­nies are typ­i­cally in­vest­ing on a less glitzy scale. “I don’t get the sense that there are a lot of new fac­to­ries go­ing up at the mo­ment. Com­pa­nies are look­ing at the next 12 to 18 months, at pro­duc­tiv­ity en­hanc­ing ma­chin­ery and equip­ment,” she says.

Those smaller gains are still im­por­tant for boost­ing the econ­omy, but in­di­cate more mod­est lev­els of con­fi­dence than full-scale new

con­struc­tion projects. EEF’S mem­bers re­port strong ex­port growth helped by healthy de­mand over­seas com­bined with the weak pound. But ma­chin­ery is of­ten im­ported so the fall in the pound also means any firm build­ing a new fac­tory faces ex­tra costs in set­ting up. “The pro­por­tion that is im­ported is quite large and that has got more ex­pen­sive in the past year. The cost of in­vest­ing has gone up by 15 to 18pc in the last 18 months,” Ho­p­ley says.

Other is­sues in­clude a skills short­age – em­ploy­ment has surged and job­less­ness crashed, and now firms are wor­ried they can­not find any more of the type of work­ers they need.

Even that is cru­cial for in­vest­ment. It is hard to de­sign a new fac­tory with­out the right en­gi­neers, and dif­fi­cult to run it with­out trained staff.

The rate of hir­ing may also re­flect cau­tion in in­vest­ing, how­ever, with the state of the jobs mar­ket both caused by low in­vest­ment, then act­ing to make it worse.

“Busi­nesses have a choice be­tween labour and cap­i­tal if they want to grow – wage growth has been slow so they can hire work­ers rel­a­tively cheaply, then get rid of them eas­ily if they need to,” says Alan Clarke, an econ­o­mist at Sco­tia­bank.

“Cap­i­tal is ex­pen­sive and is there for

the long term, so some have cho­sen to spend on hu­man cap­i­tal rather than phys­i­cal cap­i­tal.”

At the same time, the fi­nanc­ing is at least in place for cap­i­tal ex­pen­di­ture. In con­trast with the fi­nan­cial cri­sis, funds are avail­able and in­ter­est rates low, and global de­mand cre­ates an in­cen­tive to in­vest, keep­ing in­vest­ment from fall­ing off a cliff.

Both econ­o­mists are clear that man­u­fac­tur­ers need longer term cer­tainty over Brexit if they are to make ma­jor spend­ing de­ci­sions.

“The story isn’t as pos­i­tive as it might be. Given where some of those ac­tiv­ity in­di­ca­tors are, you would ex­pect in­vest­ment in­ten­tions to be stronger,” Ho­p­ley says.

“But it is quite dif­fi­cult for them to make big ca­pac­ity judg­ments be­yond that given the Brexit un­cer­tainty.”

That re­flects a warn­ing in a speech made ear­lier this year by Ben Broad­bent, the deputy gov­er­nor of the Bank of Eng­land. He said ex­porters are in some­thing of a “sweet spot”, ben­e­fit­ing from the weaker pound while also en­joy­ing no changes to their trad­ing re­la­tion­ship with the EU.

While a surge in sales would usu­ally re­sult in a rise in in­vest­ment, this sweet spot has a dead­line of March 2019 and what fol­lows is un­clear.

“While in­vest­ments with short­ert­erm pay­offs make com­mer­cial sense, es­pe­cially for those al­ready run­ning up against ca­pac­ity con­straints, the un­cer­tain­ties in­volved in longer-term de­ci­sions could tem­per the usu­ally pos­i­tive re­sponse of busi­ness spend­ing to de­pre­ci­a­tions in the ex­change rate,” he said.

So far the data have borne that out. David Davis and Michel Barnier came out of last week’s ne­go­ti­a­tions to claim progress is be­ing made, but shed lit­tle light on trad­ing ar­range­ments be­yond the next 18 months. Cer­tainty is still hard to come by. Back in Mil­ton Keynes, the mayor gives a speech wel­com­ing the new in­vest­ment and the French am­bas­sador to the UK prom­ises he will help keep re­la­tions cor­dial what­ever hap­pens in the Brexit talks.

A staff mem­ber sings La

Mar­seil­laise and God Save the Queen.

Wine is poured. A four-foot round brioche cake is cut open, its slices passed around the sup­pli­ers, clients and work­ers who have gath­ered to cel­e­brate the new pro­duc­tion line.

It is a party here, and it is show­ing no signs of slow­ing down.

‘Af­ter the ref­er­en­dum the av­er­age econ­o­mist thought fixed in­vest­ment would fall by 3.5pc’

Life af­ter Brexit: Many over­seas firms, in­clud­ing baker Brioche Pasquier, dairy gi­ant Müller and US plane maker Boe­ing have in­vested in the UK. Be­low, left, Olivier Ripoche, Brioche Pasquier’s UK boss, has backed Bri­tain

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