UK businesses increasingly downbeat as Brexit draws closer

Pessimism about the United Kingdom’s future has spread through British business, as Brexit negotiations finally move into their second phase in 2018. With the 2019 deadline for an agreement rapidly approaching, a new study shows that more than eight out of ten executives are pessimistic about what the next two years will bring, with more than half saying Brexit will be “very bad” for the UK economy.

The study, conducted by management consulting firm Eden McCallum among 222 business leaders in the UK, shows that, while a year ago 20% still had positive expectations about the next 1-2 years, only half that many do today. 82% of respondents were pessimistic about what 2018 and 2019 will bring to the UK economy – a damning contrast to 2015’s figures, when over 70% were found to be optimistic about the UK’s economic prospects for the next 1-2 years.

In comparison, the same survey held in the Netherlands and Switzerland was much more positive. In spite of the major implications that Brexit tariffs might hold in store for the Netherlands – along with other trading partners – with Britain being a dominant exporter to the Dutch economy, 55% of businesses in the country were somewhat optimistic, while 34% remained very optimistic. Swiss business leaders were more cautious, although still comparatively optimistic, with 57% remaining somewhat upbeat, and 14% very much so.

Brexit headache

Brexit, predictably, remains the key sticking point for British business – where confidence in the process has been in a state of flux regarding the matter since the shock referendum result of 2016. Over half of the survey’s respondents – 55% – now believe that Brexit will be “very bad” for the UK economy – more than double the number of those who gave such a response last year. A further 28% said it will be “bad”, compounding the realisation that, despite various weathervane polls contending otherwise throughout 2017, businesses’ overall negativity on Brexit has hardened significantly in the past 12 months.

Dena McCallum, co-founder of Eden McCallum, explained, “As the prospect of Brexit draws nearer, UK businesses are growing severely pessimistic about what is coming next. While there are encouraging signs of growth on the continent – and UK businesses share in the optimism felt by others about Europe’s prospects – back home the mood is much less sunny.”

Expectations that a Eurozone crisis will occur have decreased over the past two years. Asked about the likelihood of a further Eurozone crisis in the next five years, Swiss respondents were the most pessimistic of those questioned, with 46% contending it was ‘somewhat likely’, and 17% that it was ‘very likely’ the Eurozone would see such a crisis, compared to the Netherlands’ figures of 47% and 7% respectively. The UK’s was the most optimistic result of the three, with 41% stating that a crisis was ‘somewhat likely’, and a 10% response that it was ‘very likely’.

Populist pessimism

There is an expectation that it will take a long time to reach a post-Brexit deal – 48% of UK respondents stated it would run beyond the end of a two-year transition which was invoked by the triggering of Article 50, in March 2017. 72% said the uncertainty was having an impact on their company’s ability to plan. With talks having stalled for the duration of 2017, it is only now that negotiations are progressing to the second stage between the UK and Brussels.

However, while progress seems to have been made, due to a shock parliamentary defeat for the UK government – which lost its majority in the general election last summer – any deal will need to be ratified by a parliamentary vote. While the government downplayed the ramifications of this, as it still maintains a coalition agreement with Northern Ireland’s DUP that can deliver a narrow majority vote in the House of Commons, critics believe this gives anti-Brexit MPs a real chance to foil any agreement reached.

Due to governmental austerity plans, Whitehall has seen its headcount depleted by roughly 25% in under a decade,  making Britain’s lengthy separation from the EU more problematic for the Civil Service. As a result, the UK government spent early 2017 seeking external support from high profile professional services firms, ultimately contracting McKinsey & Company to aid with the execution of almost 800 Brexit-related plans.

Eden McCallum’s study also examined the expected economic impact of President Trump on the US, global and UK economies. Compared to the 2015 results, businesses have become more concerned about the US and less concerned about China as the source of a future global financial crisis. Concerns about the US have grown from 6% to 23% over the past two years, possible the result of the geo-political instability caused by the policies of the Trump administration.

Conversely, belief in the likelihood of China being the source of the next global financial crisis fell from 61% to 44% between 2015 and 2017. Brexit and the hard-line American administration have long been touted as a potential threat to the economic stability of the G7 in particular, so the shift in confidence regarding China is perhaps less of a surprise. In addition, over the past few years, China’s economy has also been undergoing a transformation, moving to a model more focused on services and consumer-based investments – as the republic attempts to create a more sustainable growth model for its domestic economy.

Related: British CEO positivity falls, but 2018 outlook bright for Ireland.