EU referendum fears weighing on company orders and investment

Orders among UK firms have fallen to their lowest level for almost three years as growing worries over this month’s EU referendum hit the British economy.

Accountancy firm BDO reports that company investment is flatlining, forcing them to rein in their hiring plans. It fears that economic growth could fall sharply unless firms bolster their investment plans later this year.

Survey results on whether Britain should leave the EU
Survey results on whether Britain should leave the EU.

Peter Hemington, a partner at BDO, says Brexit uncertainty has cast a long shadow over the economy and that growth expectations among UK companies have now fallen for the 10th month in a row.

“Private sector capital investment has been sluggish throughout this recovery, and recent official figures show sharp falls – no doubt related to Brexit fears. This fall has no doubt contributed to UK businesses’ expectation that economic growth will fall behind its long term trend for the first time in nearly three years,” said Hemington.

The BDO’s output index – a measure of orders that firms have on hand – slumped to 99.7 last month, from 100.6 in April.

This is the first time since September 2013 that it has fallen below 100, a level consistent with UK long-term trend growth at around 2%.

Hemington hopes that businesses will increase investment once the referendum is concluded. Otherwise, growth and productivity could suffer, with a knock-on effect on the labour market.

Investors around the globe are watching the 23 June vote with growing concern, in the light of recent warnings that Brexit would hurt the world economy.

Some 85% of European private equity and real estate firms hope that the remain campaign wins this month’s vote, according to a survey by industry group Augentius. That figure falls to 73% in the UK, where two thirds of companies said the result was either “important” or “very important” to their business.

Investors are also taking steps to protect themselves if Britain votes to quit the EU.

Commercial property investors are demanding clauses giving them the right to walk away from real estate deals, in the event of the leave campaign winning, according to Reuters.

These measures are particularly common with larger property deals.

“(Investors) fear that the value and return on investment properties may decline and that it may not be as good an investment if Britain withdraws from the EU,” explained Paul Firth, head of real estate at law firm Irwin Mitchell.

The International Monetary Fund warned last month that property prices would be hit by Brexit, and prime minister David Cameron claimed on Sunday that mortgage rates would rise. The Leave campaign, though, say asset prices will not fall if Britain chooses to leave the EU.

Powered by article was written by Graeme Wearden, for The Guardian on Monday 6th June 2016 00.01 Europe/London © Guardian News and Media Limited 2010


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