Business investment picks up as Brexit begins to clear


UK businesses’ investment expectations improved as Brexit uncertainty declined after the decisive general election result, according to a Bank of England-backed survey that points to an easing of the three-year slump in capital expenditure. 

Tracking the views of chief financial officers across 3,000 businesses every month, the Decision Makers Panel (DMP) survey by Nottingham and Stanford universities, in collaboration with the BoE, showed an uptick in investment expectations. 

In the three months to January, the surveyed businesses said they expected investment in the year ahead to grow 4.6 per cent in financial terms, up from 2.4 per cent in the previous three months. 

Column chart of Average expected annual growth in  capital expenditure over the next year, % showing UK investment expectations have picked up

Paul Mizen, professor of monetary economics at Nottingham university, said that while it was “early days”, “there are some tentative signs in the DMP that the fall in Brexit uncertainty may lead to a modest pick-up in investment”. 

In January, the proportion of businesses that saw Brexit as one of the top three sources of uncertainty dropped to 45 per cent from 53 per cent in December and well below the 54 per cent average for 2019. 

At the start of the year, the average likelihood of Brexit having a negative effect on investment over the following 12 months was 26 per cent, down from 29 per cent in November 2019, according to the survey. 

Line chart of Share of businesses reporting Brexit as one of the top 3 sources of uncertainty showing The Brexit uncertainty index has fallen

The results are in line with an uptick in activity after the December 12 general election across many sectors, including services, retail sales and housing, according to various indicators, such as the purchasing managers’ indices. 

The trend in investment is closely monitored as capital expenditure is one of the economic indicators that has been most negatively affected by the vote to leave the EU. Since the referendum in June 2016, the Brexit process reduced investment by 11 per cent by the middle of 2019, according to calculations based on data from the DMP. 

Figures from the Office for National Statistics released this week showed that at the end of last year, the level of business investment was only 1 per cent higher than in the second quarter of 2016, when the UK voted to leave the EU, compared to a 16 per cent expansion in the previous corresponding period. 

Line chart of Real value, rebased showing Business investment growth is below the trend

DMP data point to productive firms holding back on capital spending since the referendum more than their less productive counterparts as they recorded higher levels of Brexit uncertainty, which is associated with the decline in investment growth since 2016. 

However, as the future relationship with the EU remains uncertain, Brexit uncertainty remains above the levels of 2017 and 2018.

Nearly half of the businesses surveyed said they thought the negotiations between the UK and EU over their future relationship would drag on beyond the end of December 2020, the scheduled end of the transition period, according to the DMP survey. 

Column chart of Brexit uncertainty index, by average level of productivity, 2013–15 showing More productive firms tend to be more uncertain about Brexit

Moreover, investment growth expectations have exceeded realised spending expansion in the last year, according to DMP data. This possibly reflects a longer period to resolve Brexit than at the time those expectations were formed. 

With tariff levels on imports and exports unknown and a lack of information over the cost of doing business, uncertainty will likely “continue to hold back until there is more clarity”, said Prof Mizen. 


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