With uncertainty on the rise, we shouldn't take business confidence for granted

Christian May
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Tower 42's Bird Study Project 2011
The corporate community has been left nervous by political events (Source: Getty)

Business confidence has defied Brexit gloom in recent months, with the latest Lloyds Bank index recording a strong positive showing among small and medium-sized firms – based on sales and profit expectations.

Manufacturers and exporters have also enjoyed a bullish run, with demand hitting its highest level since 1988, according to the CBI.

Despite the resilience shown by firms as the UK weaves its way towards exiting the EU, the result of the General Election appears to have generated something of a cloud over business optimism.

Read more: British consumer confidence takes a big inflation hit

In the immediate aftermath of Theresa May’s election disaster, the Institute of Directors surveyed 700 of its members, 65 per cent of whom said the fresh political uncertainty resulting from a hung parliament is “a significant concern” for the UK economy.

Given that May made so much of the idea that a large Conservative majority was essential for the stability of the UK, it’s not hard to understand why some may be nervous after she failed to achieve one.

This week we’ll get sight of the latest purchasing manages’ index for the services and manufacturing sector – with some analysts expecting a modest decline.

The figures come as the Centre for Economics and Business Research (CEBR) today downgrades its UK economic growth forecast. In April, before the election, they predicted growth in 2017 to come in at 1.7 per cent. Now, citing “the political uncertainty created by the indecisive election outcome” they expect GDP growth of just 1.3 per cent – a significant drop on pre-election expectations.

Read more: Business confidence rebounds to 18-month high a year after Brexit vote

The CEBR says “the newly-created political uncertainty is likely to lead to an economic slowdown this year and next via lower business investment and weaker consumer spending”. The latest data shows that consumers are finally feeling an inflation-induced squeeze (compounded by flatlining wage growth) but it’s business investment that keeps Treasury ministers awake at night.

Later today, chancellor Philip Hammond will urge top chief executives not to hold off on spending and investment decisions, promising in exchange to take their interests into the heart of Brexit negotiations.

Downing Street sources are keen to downplay talk of resetting relations with the business community, insisting that business has always been high on their agenda.

Nevertheless, a more accommodating approach to relations will be one way of helping to calm the nerves of a corporate community left nervous by recent political events.

Read more: Employer confidence stable as Brexit negotiations start

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