Election uncertainty leads to fall in spending

Companies and households are postponing investment and purchases ahead of the 7 May poll

Uncertainty over the looming general election has prompted more top finance chiefs to cut back investment plans and jittery consumers to postpone spending, according to worrying new evidence.

Accountant Deloitte’s latest snapshot of more than 100 chief financial officers at FTSE 350 and large private companies showed investment intentions at a two-year low in the first three months of the year.

And according to Barclaycard, nearly one in five shoppers are also delaying spending on items such as holidays and home furnishings, until the outcome of the closest election since 1974 is clear.

The alarming signs came as the pound dipped to a new five-year low against the dollar at one stage, on a combination of election jitters and expectations of a US interest rate hike before the end of the year. The pound fell to lows of $1.4566 at one stage and analysts said the currency could test the $1.4228 lows seen in the immediate aftermath of the 2010 general election.

Deloitte’s quarterly survey showed financial chiefs far less willing to splash out on capital investment than a year ago. Just 53 per cent said they would be increasing spending over the next 12 months, down from a high of 80 per cent in the beginning of last year and the lowest since early 2013, when the UK was threatened by an unprecedented tripledip recession.

Any dip in business spend- ing would be an added blow for UK growth, as the Office for Budget Responsibility had already lowered its estimates of 2015 investment due to lower spending in the oil and gas industry, following plunging crude prices.

Ian Stewart, Deloitte’s chief economist, said: “The UK economic outlook has improved since the start of the year, but this seems to have been offset by mounting political risk. Rising perceptions of uncertainty have dampened corporate risk appetite and fed through to a softening of investment intentions. Risk appetite appears to have decoupled from its usual drivers, the economic outlook and equity market performance. This provides an ominous reminder that the business recovery is not assured.”

The pre-election caution is echoed by consumers despite a boost to real-terms wages from ultra-low inflation, according to Barclaycard’s snapshot of 2,000 shoppers. The majority – 56 per cent – are concerned about the poll’s potential impact on their finances, while 19 per cent said they would postpone major purchase decisions until the results of the election were known. The worries come despite official figures today set to show the Bank of England’s official inflation benchmark, the Consumer Price Index, remaining close to 0 per cent in March or even turning negative for the first time, giving millions of households across the country a real-terms pay rise.

Election ji t ters also impacted the currency market today as the pound yo-yoed against the dollar. Michael Hewson, of CMC Markets, said: “This is following the pattern of uncertainty relating to the last general election – we have come full circle.” If a hung parliament produces a minority Labour government backed by the Scottish National Party – or even two general elections in the same year, as in 1974 – the pound “could test the lows of $1.35 seen in 2009 in the wake of the financial crisis”, he added.

This provides an ominous reminder that the business recovery is not assured