Angela Jameson: Gung-ho attempts to talk up economy can't paper over cracks
PUBLISHED: 19:00 03 September 2017
Attempts to look on the bright side, economically, are - as ever - undermined by the same doubts and uncertainty surrounding Brexit, says Angela Jameson.
A press release lands from a private equity company that wants to talk up the economy.
ECI Partners, which invests in small-to-medium-sized growing firms, says that the 350 businesses it has surveyed for the last eight years are more optimistic than ever, with more than half of them predicting that revenues will climb by a fifth this year.
The weak pound is apparently turbo-charging their businesses and seven in 10 of them want to sell overseas, the highest ratio for more than five years and significantly more than the 11% national average of all companies that export, according to the CBI.
So who are these dynamic businesses and where do they went to sell to? Well most (53%) want to sell into Europe, followed by (52%) the US.
Eldon Robson, CEO at Hexham-based drinks company Fentimans, says: “We’re forecasting turnover of £50m by 2020. The main flow of the tap will be exports - that will represent 60% of the business in three years. We currently sell into 65 countries and that is rising to 72.”
So no harmful effects from Brexit then? Well it’s not quite so simple.
These fast-growing companies may be benefitting from the cheaper pound, but they still have concerns about the longer term impact of Brexit.
They want more clarity from the Government about what will come out of the EU negotiations and that the economy won’t be trashed in the process.
The same gung-ho press release says two-thirds of companies are scared that the UK will tip into recession, while more than a third think that negotiations will go against them.
Consumer companies and financial services firms are even more pessimistic about trade negotiations with the EU, with almost half consumer companies and 45% of financial services firms worried that trade talks will go against them.
Plagued by skill shortages, some companies also think that Brexit is deterring skilled EU workers from applying for jobs here. The EEF - which represents British manufacturing - said this week that 25% of manufacturers had seen applications from EU nationals drop, reflecting warnings from accountants KPMG of a looming brain drain.
As the EU ratchets up negotiations with criticism of the UK’s “position papers” as ambiguous and “not satisfactory”, the Brexit challenge continues to beset businesses.
The Labour Party’s announcement that it will now support staying in the single market is a welcome development but realistically the pro-Remain business lobby will not rush to back Jeremy Corbyn as Prime Minister, should Theresa May’s government not last.
Labour is opening up a debate that is needed, but most businesses still need to see certainty and clarity about what will happen next. Should they borrow more to invest in new equipment or hire new people? Is it worth putting in the time and money needed to start selling in Europe, when new tariffs could be imposed on their goods in less than two years?
Meanwhile, the Prime Minister is visiting Japan this week to help drum up post-Brexit free trade deals. Japan is one of the biggest foreign investors in the UK, particularly in the car industry through Nissan, Honda and Toyota, and in rail, with Hitachi. Japanese companies have said recently that they remain committed to their employees and factories here, but if the UK is not able to replicate the EU’s trade agreement with Japan after Brexit, there is every probability that the EU and Japan would be better economically integrated than the UK and the EU.
Unfortunately for May it looks unlikely that Japan will rush into a new trade deal, while their priority is still to complete a deal with Brussels - reached after four years and 18 rounds of negotiations - announced earlier this summer.
Stock markets in Asia and Europe are also jumpy as North Korea’s unprecedented missile launch sent investors diving for cover. The FTSE 100 index of leading companies fell sharply on Tuesday, as did European markets.
Some analysts see the twitchiness after the return from the bank holiday as an indicator that a larger stock market collapse might be just around the corner. Three major FTSE 100 companies - WPP, Provident Financial and Dixons - suffered sharp falls in share prices last week, aggravating investors’ nerves.
Sterling is now at its lowest against the euro since the financial crisis of 2009. Hopes that the Government can finally make some progress in this third round of Brexit negotiations are fading fast across the City.