FD confidence slumps post Brexit

A POLL of UK finance directors has revealed declining economic confidence after Brexit vote

Nearly half of the 100 finance directors and CFOs polled predicted that the economy will decline in the next 12 months. Last year, more than half had predicted “modest growth”, of more than 1% GDP for the UK.

Conducted by ICAS in partnership with law firm DLA Piper, the survey revealed that the ability to employ EU nationals for UK-based roles is even more important than the UK securing a free trade agreement with the EU, and the UK gaining access to the European single market. “Currency exchange rates” is featured in the top ten priorities for the first time, in sixth place.

Anton Colella, ICAS chief executive, said “The government’s Brexit negotiation team and advisory firms must now do all that they can to work with finance leaders, reduce uncertainty and remove barriers to growth so that UK business can continue to flourish as it faces its new future outside of the EU.”

The survey found that 74% of FDs believe Brexit will create challenges and 28% believe Brexit will create new opportunities. Nearly 1 in 4 of UK FD’s (23%) are considering delaying or cutting investment in the UK following the EU referendum, 14% are considering cutting headcount, and a further 9% are already cutting their staff numbers. 15% are considering transferring some activities to elsewhere in the EU, with just 2% considering transferring activity into the UK.

Political uncertainty over the UK’s relationship with the EU post-Brexit is rated as the biggest barrier to growth this year, domestic political factors in the UK were cited as the second. Anton Colella, ICAS Chief Executive, said: “While the UK’s decision to leave the EU has created unprecedented challenges for Finance Directors and CFOs, there are also opportunities for innovation and positive change. “

Innovation appears to be a growing concern for FDs, with bringing new products and services as the fourth highest priority, up from seventh place last year. Brexit could be good news for advisory firms with 24% of the FDs saying they are considering seeking advice on the implications and 17% indicating that they are already working with Brexit consultants.

Service sector confidence

Confidence among business and professional services firms fell at its fastest pace since 2011 in the three months to August, suggesting the uncertainty over how the UK will exit the European Union is already impacting, according to the latest research.

In the first quarterly service sector survey since Brexit, optimism in both sub-sectors fell sharply, while in consumer services, confidence dropped at its fastest since the February 2009, the CBI’s latest quarterly service sector survey.

Optimism about the business situation dropped -30% as 40% of firms interviewed said they were less optimistic. Confidence among consumer service firms also fell -37% as 52% said they were less optimistic.

Investment plans in business and professional services were the weakest in over four years, the study found, indicating that firms are adopting a wait-and-see approach given the uncertainty over how and when the UK will exit the EU.

Business and professional services firms expect to continue investment spending on land and buildings, but cut back on spending on vehicles, plant and machinery over the next year.

In consumer services, investment in land and buildings will continue to grow, but at a slower pace, while spending on vehicles, plant and machinery will be flat on the year. IT expenditure will continue to see robust growth in the sub-sectors.

The news will be worry for the government, who have still not said when they will trigger Article 50 of the Lisbon Treaty, given that the services sector remains the UK’s dominant sector, accounting three-quarters of the economy.

The pace of business volumes growth in the business and professional service sector, which include accountancy, legal and marketing firms, slowed, but remained stable in consumer services in the quarter to August.

Growth in consumer services companies – which include hotels, bars, restaurants, travel and leisure – increased at a moderate rate in business volumes.

Although jobs growth remained above average in both sub-sectors – and was at the strongest level this year in consumer services – it is expected to slow over the next quarter. Growth in spending on training and retraining also remained resilient.

“Looking ahead, the service sector faces a challenging environment in which to grow and invest, with uncertainty about demand weighing on firms’ minds,” said Anna Leach, CBI head of economic analysis and surveys.

“To shore up confidence across the economy, the government must clearly communicate plans for negotiations to leave the EU, and demonstrate its commitment to stimulating growth and driving investment with an ambitious Autumn Statement,” Leach said.