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Brexit blows a ?22bn hole in business investment underlining need for trade deal

Businesses have invested ?22bn less in the last two and a half years because of the uncertainty caused by Brexit, according to new analysis of official data.
Figures from the Office of National Statistics show gross fixed capital formation a wide-ranging measure of business investment rose steadily by about ?2bn a year in 2010 until 2015 when the European Union Referendum Act was passed, paving the way for the following years referendum.
However growth has since dropped sharply, according to data from management consultancy Vendigital.
Consequently, businesses have invested ?22bn less than they would have done based on pre-Brexit trends.
Brexit blows a ?22bn hole in business investment underlining need for trade deal

How business investment has dropped away from the trend
Since the referendum Bill, capital investment in the UK has fallen significantly and is now ?22bn below whereit should be, said Roy Williams of Vendigital.
He said manufacturers are reining in investment because they are unsure if they can depend on orders from the EU. Mr Williams added that policymakers increasing focus on planning for a no-deal could make things worse.
Manufacturing trade body EEFs surveys of the sector pointed to a similar conclusion. Lee Hopley, the associations chief economist, said the strong performance of some sectors is masking overall weakness.
Our recent surveys have pointed to positive investment trends, but intentions appear weaker than other business indicators such as new orders and output would indicate a break from past trends, she said.
Recent investment data also looks less bright in the context of whats happening internationally, with capital expenditure and near-term forecasts looking better in many of our competitors.
Brexit deal or no deal? | Read more
Ms Hopley added that the UKs long-standing problems with low productivity are unlikely to improve without significant business investment.
The size of the lost business investmentcould actually be larger than the figures suggest, according to one economist. I think [?22bn] is an underestimate because the global economy improved after the UK voted to leave the EU, said Kallum Pickering, an economist at Berenberg Bank.
Demand, risk-taking and business investment all picked up, but the UK missed out on the party and business investment suffered as a result.
However, Mr Pickering said the fact that business investment is still growing albeit at a slower rate was a positive sign.
By raising business investment despite the uncertainty, firms showed that they cared more about servicing the growing market than they did about the hard Brexit risk, he said.
This suggests firms fundamentally view the UK as still a good business environment. Mark Carney, the Governor of the Bank of England, has also warned about lower business investment. Last month he said investment had recently picked up, but companies are spending much less aggressively than usual in response to an otherwise very favourable environment.
Brexit blows a ?22bn hole in business investment underlining need for trade deal

Fears that British and EU negotiators will not thrash out a deal is harming investment

Credit:
Bloomberg
Consequently, businesses have invested ?22bn less than they would have done based on pre-Brexit trends.
Since the referendum Bill, capital investment in the UK has fallen significantly and is now ?22bn below whereit should be, said Roy Williams of Vendigital.
He said manufacturers are reining in investment because they are unsure if they can depend on orders from the EU.
Mr Williams added that policymakers increasing focus on planning for a no-deal could make things worse.
Brexit blows a ?22bn hole in business investment underlining need for trade deal

Manufacturers can help boost UK productivity by upping investment

Credit:
PA
Manufacturing trade body EEFs surveys of the sector pointed to a similar conclusion. Lee Hopley, the associations chief economist, said the strong performance of some sectors is masking overall weakness.
Our recent surveys have pointed to positive investment trends, but intentions appear weaker than other business indicators such as new orders and output would indicate a break from past trends, she said.
Recent investment data also looks less bright in the context of whats happening internationally, with capital expenditure and near-term forecasts looking better in many of our competitors.
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