New research by Grant Thornton International Ltd. has identified a significant drop in UK business confidence following the UK's vote to leave the European Union. The firm's International Business Report recorded a -19 percentage point drop in net business optimism in the third quarter to 21% compared with the previous quarter and a -46pp drop from the same period last year.
The global survey by Grant Thornton of businesses in 36 economies, conducted in August and September, also identifies a loss of confidence across the EU, with optimism dropping -7pp in the quarter, with Ireland (-24pp), France (-18pp) and Spain (-19pp) amongst some of the trading bloc's biggest drops.
The drop in overall UK business confidence is further reflected across other indicators for the year ahead, with selling price expectations (-3pp), employment (-2pp), profitability (-11pp) and investment in new buildings (-3pp), plants and machinery (-7pp), and research and development (-5pp) all recording a quarterly drop in expectations. Export expectations, however, did show a net increase of 10pp, possibly reflecting the relative devaluation of sterling against other major currencies following the outcome of the referendum.
Robert Hannah, chief operating officer at Grant Thornton UK LLP, commented: "The UK's historic vote to leave the European Union and the number of unknowns this creates from an economic and regulatory perspective has rattled business confidence – both in the UK and amongst some of our closest trading partners on the continent. Whilst the subsequent weakness of the pound will be a cause for concern amongst some importers, many businesses are now reviewing their export strategies and looking for ways to make the most of the newfound competitiveness of British goods and services abroad.
"Whilst the UK's drop in confidence in the third quarter remains one of the most significant amongst countries surveyed, business optimism has been steadily trending downward in the UK over the past two years, from a high of 82% in Q3 2014."
The survey also examines whether business leaders across the globe had put key investment decisions on hold, pending greater clarity on the UK's future relationship with the EU. More than a fifth (22%) of UK businesses and nearly a third (30%) of Irish businesses indicated they had put key decisions on hold as a result of the Brexit vote.
The data comes as the Prime Minister has set the benchmark deadline for triggering Article 50, the official start of Brexit negotiations. When asked what areas the government should prioritise to support their businesses' growth, UK respondents pointed to:
- Full access to the single market (48%)
- Continued free movement of people across Europe (46%)
- A review of UK employment legislation based on EU rules – e.g. working time directive (45%)
- Trade deals outside the single market (34%)
Robert Hannah continued: "With a deadline now set for Article 50 to be triggered, British businesses are clearly nervous about the uncertainty this creates over the coming years. Whilst nothing, materially, has changed economically since 24th June and many businesses have kept a 'business-as-usual' approach to their daily operations, they're clearly now looking to the mid to longer term and factoring greater political and economic uncertainty into their business plans. As this new dynamic starts to unfold, organisations across the public, private and third sectors will need to collaborate more effectively to ensure Britain's future economic success is at the heart of Brexit negotiations and to enable a vibrant and dynamic UK economy to emerge."