Brexit: UK Businesses Prepare to Cut Investment and Jobs

A third of UK businesses are planning investment and hiring cuts in the wake of a Brexit vote, a new survey from a leading UK commerce organisation has found.

The poll from Institute of Directors surveyed more than 1,000 of its members following the Brexit result. The poll found that more than a third of businesses participated in the survey said they will cut investments following the news Britain will leave the European Union, nearly half of them will remain the same investment levels while just 9% of them will increase investment.

In terms of employment, a third of companies in the survey will continue hiring at the same pace, but a quarter will put a freeze on recruitment and 5% of them plan to make redundancies.

Simon Walker, Director General of the Institute of Directors commented on the report, saying a majority of business leaders think the vote for Brexit is bad for them, and as a result plans for investment and hiring are being put on hold or scaled back.

“Businesses will be busy working out how they are going to adapt and succeed after the referendum result. But we can’t sugar-coat this, many of our members are feeling anxious,” Walker said.

Richard Marwood, UK equity fund manager at Royal London Asset Management said was expected that businesses would defer some investments until they get a clearer picture of what the rules are following a Brexit vote. He said some investment decisions could not be “put hold forever; however companies might take a longer time to decide".

“There will be pause in investment,” Marwood said. “And this may lead to speculation about the UK’s economic future.”

More Profit Warnings by Companies

On Monday, airline company EasyJet (EZJ) and estate agent Foxtons (FOXT) announced profit warning thanks to Brexit fallout. EasyJet said Brexit would harm their profits as a lot of flight cancellation are expected, and Foxtons said it expected a hiatus in house purchases. Investors should expect more profit warnings by companies in the future according to Marwood.

Over the long term however, Marwood thinks that Brexit could be an opportunity for UK businesses to become more competitive, helped by the movement in the UK currency.

Companies Will Keep UK Operations

Following the Brexit outcome there has been significant news inches regarding the risk of banks relocating staff out of London. While the financial industry faces a unique set of challenges, according to the Institute of Directors poll 71% of companies surveyed said that they would keep all of their present UK operations in the UK. Only 17% of them would consider moving some of the operations out of the UK to elsewhere in the European Union.

Business Leaders Worried about Stock Market

Business leaders in the survey also expressed their top concerns regarding Brexit – with three-quarters of ranking number one the risks to the stock market.

“There is no point crying over spilled milk. We will not lose our faith in the ability of British firms to overcome these obstacles, but these results highlight the importance of the Bank of England maintaining stability in the financial system. It is crucial that the banks do not starve businesses of cash,” Walker said.

Doing a Deal with Europe

The IoD members, who can be found in 80% of FTSE 100 companies, said that they were unconcerned with how long it took to negotiate new deals with EU member states, only that the arrangement were the best possible for their businesses to do trade.

“Cool heads will be needed because, at the moment, nearly half of IoD members worry the rest of the EU will react negatively to the UK in negotiations,” Walker said.

Quentin Fitzsimmons, senior fixed income portfolio manager at T. Rowe Price said that different countries in Europe have varying levels of trade-dependency with the UK.

“The power of economic self-interest should not be underestimated. France will probably want to make it very difficult for UK financial services firms to operate on the Continent. However, Germany might be inclined to be more flexible because its car industry is heavily reliant on exports to the UK and it would not want to lose that trade,” Fitzsimmons said.