The political crisis surrounding Brexit has sapped confidence from some of the UK's biggest and smallest companies alike, as crunch talks between Labour and the Conservatives reach a “delicate stage” this week.
More than eight in 10 finance chiefs at large UK companies now say the long-term business environment will be worse as a result of Brexit, according to a first-quarter survey by Deloitte – up from 68 per cent a year earlier, and 60 per cent two years ago.
Meanwhile, more than half of Britain’s small and medium-sized businesses – 57 per cent – predict the economy will plunge into recession this year, a survey by Bibby Financial Services revealed this morning.
Yesterday David Lidington, in effect the Prime Minister's deputy, admitted talks with Labour aimed at reaching a Brexit compromise were at a “delicate stage” but would continue into this week.
The extent of the Tory party's divisions was laid bare by former leader Iain Duncan Smith, however, who called on Theresa May to resign next month and said the negotiations were potentially a “recipe for disaster”.
Duncan Smith said he had “real concerns with some of my colleagues going out lauding Jeremy Corbyn”. A poll over the weekend found that the Conservatives could lose 59 seats if a General Election was called.
Uncertainty surrounding Brexit heightened last week when the EU agreed to extend the UK's departure until 31 October. Business confidence has also been hampered by economic headwinds stemming from trade tensions and slower global growth.
The Deloitte survey, which spoke to 89 UK chief financial officers (CFOs), many from FTSE 100 and FTSE 250 companies, found that half now expect revenues to fall in the next 12 months, compared to only 18 per cent a year before.
Pessimism has seen CFOs slash investment plans, with 48 per cent saying they plan to reduce their companies’ capital expenditure.
Small and medium-sized businesses have had their least confident start to a new year since 2014, according to Bibby Financial Services, as firms from across the spectrum were weighed down by the failure to find a Brexit solution.
A third of smaller UK businesses said in the first quarter survey that they are holding back investment due to economic uncertainty, a significant increase from a quarter at the end of 2018.
Edward Winterton, UK chief executive of Bibby Financial Services, said: “If SMEs are the warning lights of our economy, this quarter signals to us that they see trouble ahead.”
“The parliamentary process has unfairly dominated our national conversation and it is imperative we get a resolution soon,” he said. “Political uncertainty is acting as a brake on the economy.”
As Brexit uncertainty hangs over the economy, chief financial officers are looking to hoard cash. Over 50 per cent said increasing cash flow is a “strong priority”, a higher score since than at any time since 2010.
David Sproul, senior partner and chief executive of Deloitte North West Europe, said: “Large businesses are clearly looking to protect themselves against risk by raising cash levels and bullet-proofing balance sheets. They appear to be battening down hatches for tougher times ahead.”
Around half of CFOs also expect to reduce hiring due to Brexit, the highest level in more than two years.
Meanwhile, a survey from recruitment consultancy Morgan McKinley today revealed that the number of jobs openings in financial services in London in the first quarter fell nine per cent compared to the same period a year earlier.
The number of professionals in London seeking jobs in the sector decreased 15 per cent over the same period.
Morgan McKinley managing director Hakan Enver said: “The inability of the government to reach consensus on a Brexit deal has crushed confidence among City employers.”
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“With the Brexit deadline having been extended till the 31st October, the stress on businesses is showing no sign of letting up,” he said. “Jobs continue to flow out of London with Dublin being by far the biggest beneficiary, followed by Luxembourg, Paris, Frankfurt, and Amsterdam.”