British firms curb spending due to Brexit uncertainty
READING, ENGLAND: Heavy machinery whirrs and clanks on the factory floor of precision metalworking firm Robert Bion & Co, where a planned three-metre robotic arm would have been speeding up output by now, if Britain had not voted to leave the European Union.
“We’re waiting to get a clear idea of what the future might be before we make any significant investments,” owner Nick Bion said at the company his father founded in 1964 in Reading, west of London.
Britain’s economy has held up better than most economists predicted since voters chose in June to quit the EU.
Consumers have carried on shopping and employers have not laid off workers on a large scale, despite uncertainty over the country’s future trade relations with its biggest export market.
But Bion’s decision not to go ahead with plans to automate part of his production line by installing the 150,000 pound (US$195,000) robotic arm is the kind of investment curb which is likely to damage the economy over the longer term.
He had been close to placing the order in March but put the project on hold pending the referendum, even though he, like most people, thought Britain would stay in the EU.
When voters opted to leave, he scrapped it altogether because of the risk Brexit would hinder access to the 500 million-strong market.
“I think for lots of people business is good, but that doesn’t mean it will be good in three years’ time,” Bion said, as some of his 28 employees fed perforating machines with the metal and plastic sheets that his firm sells to manufacturers of computer servers, car ventilators and audio devices.
Prime Minister Theresa May has said she will not start the process of Britain’s exit from the 28-nation economic and political bloc until next year while she tries to balance voters’ expectations of limits on immigration against the need for a smooth trading relationship with the EU.
The exit negotiations will take up to two years from whenever London decides to start the process and May has not said how she plans to get around the EU principle that goods cannot freely cross borders unless people can too.
The government says leaving the EU will allow Britain to free up trade with countries beyond the bloc, but with the outcome so unclear, Bion is not the only one holding back.
The Bank of England said this month that companies’ investment intentions were their weakest since 2010, signalling an overall halt or even cut in the rate of growth in such spending in real terms.
The BoE has long hoped for stronger business investment to put Britain’s economy on a surer footing.
Like Bion, firms had frozen some investment plans before the referendum, the figures showed, but have slashed them more sharply since June, particularly in the services sector.
The trend looks set to continue. A survey by financial services firm Deloitte conducted after the Brexit vote showed 58 per cent of 132 chief financial officers expected Brexit to lower their capital spending plans over the next three years.
Merger and acquisition activity involving British companies has also dropped, to the lowest level in at least two decades, Thomson Reuters data shows.
Many small manufacturers are waiting to see the plans of larger companies they supply before taking their own decisions.
Last month, the chief executive of Japanese car manufacturer Nissan said future investment in Britain’s biggest car plant in Sunderland, northeastern England, would depend on the terms of the eventual new deal with the EU. — Reuters