UK economy: Brexit not the problem – uncertainty is
The outgoing President of the CBI has caused a small storm by saying that parts of British industry could become “extinct” unless a proper Brexit deal – including membership of the customs union, the CBI’s preferred approach – is negotiated.
This has attracted the usual binary comments in the media: the ‘we told you so’ from the Remain camp, and the tedious charges of treason from Leave supporters.
But Paul Drechsler’s interview was actually quite nuanced. There was very little that people of either viewpoint could disagree with: he contended that the debates had been ruled by politics rather than economics; that the uncertainty in government was having a knock-on effect to business, making it difficult to make investment decisions; and that the UK’s economy is growing slower than most of its competitors as a result.
These are pretty much incontestable observations. Growth in the British economy is lagging behind almost every major country other than the permanently sclerotic Japan; businesses clearly hold onto cash and do not invest in times of uncertainty; and this week’s playground antics at PMQs perfectly illustrate that the political class are completely obsessed with their own games rather than sorting out the real issues of Brexit.
Brexit is going to happen. There will be no second referendum. Most die-hard Europhiles (such as me) have accepted this. What business leaders cannot tolerate is another two, three, four years of kicking the can down the road. Uncertainty kills businesses.
Drechsler was talking primarily about the manufacturing industry when he said that already “tens of millions” of pounds had been spent by companies investing outside the UK as an insurance policy. But our clients are not immune – far from it. The tech and games industry in the UK relies hugely on the ability of EU citizens to come here and work; the consumer media sector is driven by advertising, which relies on damaged consumer confidence for its growth; events and training clients rely on businesses feeling confident that their investments in staff development will be returned long-term.
On the plus side, the poor performance of the economy – and the government – have depressed the pound to such an extent that tourism is up (a boon for our theatre and entertainment clients), and we are seeing increased levels of inward investment from overseas, particularly in the SaaS, ed tech and business information sectors. Long term, of course, even this is not great for UK plc: overseas investment means that profits will be repatriated, and tax receipts will suffer.
Figures released last month show that British companies have the lowest level of growth investment in the G7. There can be little doubt that this is caused, as Drechsler says, if not by Brexit itself then by the continuing doubts over what it means for the country.
Business leaders should be pressing the government to stop playing politics and start making rational decisions for the good of the economy. That is their job.
Martin Tripp
Martin Tripp Associates is a London-based executive search consultancy. While we are best-known for our work in the TMT (technology, media, and telecoms) space, we have also worked with some of the world’s biggest brands on challenging senior positions. Feel free to contact us to discuss any of the issues raised in this blog.