Firms must invest before 2020 to prepare for post-Brexit markets

09 September 2019 4 min. read
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With so much uncertainty still surrounding the outcome of Brexit, and the future of the British Government, many businesses have found themselves caught in the headlights, unsure of which direction to move in. According to Libra Europe Consulting expert Sean Pickering, however, firms willing to avoid simply waiting to see what happens will have an advantage in whatever market conditions await post-Brexit.

With the Brexit process having stalled, confidence in the UK economy sits at a low-point. Recent studies of both large and small businesses have found that British capital is facing a turbulent 12 months. As a No Deal scenario once again looms in October, the country is said to be on the brink of a recession. Earlier in the Summer, a survey from BDO found this had led to a major downturn in the number of job vacancies, as well as a slowdown in weekly earnings growth. It declined by 2.29 points from January to 112.82 points for June.

The sudden change comes as UK companies further back away from investment decisions in preparation for Brexit. Many had used the lax employment laws in the UK as an opportunity to hire large numbers of staff rather than invest in things like plant machinery. In the event of a recession, it would be easier to reverse the hiring process in the event of a required swift exit from the UK rather than divesting a large amount of equipment. However, now even smaller investments in new staff seem to be dropping off, suggesting spending by UK businesses ahead of Brexit’s conclusion is set to fall, in general.

Firms must invest before 2020 to prepare for post-Brexit markets

However, according to Sean Pickering, a Business Analyst at Libra Europe Consulting (LEC), now may be the last chance for firms to sink some much needed capital into their operations before a period of sustained economic turbulence. In a comment piece for LEC’s website, Pickering noted that while GDP is expected to grow by as much as 1.5% in 2019, business investment is expected to decrease by 1%–1.3%. With interest rates expected to increase in 2020 (making investments more expensive), British businesses would be well advised to act now to make the most of what stability remains before the close of the year.

Pickering explained, “Across a huge range of sectors, British business’s appetite for investment has seriously decreased. Instead of looking to the future, businesses are focussing on contingency plans and stockpiling resources. Ultimately this kind of behaviour is unsustainable, an opinion that is echoed by the British Chamber of Commerce. While this low investment, contingency approach may be the best available strategy for some, many other businesses are likely missing a valuable opportunity to gain competitive advantage. You should make it a priority to establish which of these categories you fall into.”

Many unknowns remain regarding Brexit, particularly after UK Parliament voted to block a No Deal Brexit and a snap election earlier this week. While Britain’s legislature could still be prorogued to allow the country to crash out of the EU, this also seems unlikely, meaning the minority Government remains in office, but is unable to take meaningful action. However, amid this chaos, Pickering suggested that investing now in operational improvements could ensure that companies are competitive no matter what outcome.

The LEC professional concluded, “The results from the referendum were published 3 years ago now, and we are still none-the-wiser to what impact Brexit could have to our businesses. The truth is that even after the 31st of October, we might still not know what the impact will be as we enter some form of transition over the coming years, whatever the end state goal may be… Changes that you do before your competition gives you a head start and potentially frees up your time for reacting to Brexit once the geopolitical situation is clearer and you can be sure that the decisions that you make are relevant.”