UK business confidence hit by cluster of Brexit uncertainties

04 December 2018 3 min. read
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Chief Financial Officers (CFOs) at UK companies remain wary ahead of the finalisation of Brexit in 2019. As the end-game approached, a new survey of British CFOs shows their confidence in business outcomes is languishing at a net of -30%, the lowest level since the aftermath of the initial referendum result.

The effect of Brexit negotiations – which continue under a cloud of uncertainty in the face of cabinet and parliamentary negotiations – have more than made their mark on the business community. As a result, CFOs face a gruelling few months, as many attempt to figure out the conundrum of an antidote to Brexit uncertainty before the UK formally secedes from the EU.

While the uncertainty of Brexit works both ways, occasionally leading to optimistic forecasts on the part of business leaders during the two-year negotiation window, at the end of it all, the sentiment seems to have firmly settled in the realm of pessimism. Earlier in the year, Deloitte reported on the dimming CFO optimism across the UK, with falling expectations for company performance, and heightened risk aversion. Now, the latest analysis from the Big Four firm has found that business leaders feel incredibly uneasy about their UK operations going forward.

Business confidence

To that end, CFO confidence in the latest survey has slipped to a net -30%. This represents a low point since the referendum result in 2016, when confidence plummeted to -70%. While overall, businesses are wary of a coming storm, Deloitte also noted that some industries are facing more considerable headwinds than others. High-street stores in particular have seen the number of closures increase drastically over the past year.

Retail sector struggling

Of this, non-food retail has been the hardest hit segment – at a -2,200 contraction in H1 2018, up considerably from -665 in H1 2017. The convenience segment saw around 500 closures in H1 2018, while leisure saw declines in excess of 1,000. In total there was a net closure of 4,400 stores in the first half of 2018, well above the small total number of net opens in 2017 (103) and the large hit the industry took in 2016 (2000 net closures).

Net loss of high-street stores grows in H1 2018

One of the trends affecting high-street retailers is an increased shift to online sales channels, which has begun to impact their footfalls – yet growth even on high street was relatively positive, at 2.2%, although online sales were far more significant in terms of growth at more than 15%. Online retail represented the lion’s share of total growth for the period, at 53% of the £9.6 billion in revenue growth. Online spending now represents more than 18% of total sales in the UK.

The pain for retailers may not be over yet – the study found that consumers are looking to rein in their spending. A net -6% say that they will decrease their holiday spend, while almost 10% said that would cut back on electronics equipment spend in the latest survey. Retailers and providers of entertainment are likely to see footfalls decrease even further – with 10% of respondents saying that they will reduce their spending on clothing and footwear, with a similar figure for furniture and home-ware spending.

Planned spending on discretionary items set to decline

The biggest decline is in restaurant and hotel spending, at around -12% net, up from -4% in the previous quarter. Going out is set to be the hardest hit, with a net -12.5% of respondents planning change their spending habits, up from -5% in the previous quarter.

Commenting on the results, Deloitte Chief Economist Ian Stewart, said, “For business and consumers the risks of an abrupt and disruptive exit from the EU loom increasingly large. The implication is that a deal that secured an orderly exit could help bolster confidence across the economy.”

Related: Despite sunshine, tough trading conditions persist for UK retail.