The Brexit Decision: Uncertainty is the enemy of investment

Impacts from uncertainty over Britain’s future ahead of the EU referendum are already being felt based on comments from Ross Walker, the RBS chief economist.

 

In a recent article[1], he stated that uncertainty has led to a reduction in hiring and investment as “this uncertainty is likely to be corrosive”.  The link between investment and growth seen in UK businesses was a major theme from the Moorhouse Barometer on Change 2015/16.

Investment is the key to growth, and uncertainty kills investment

Many respondents to our Barometer on Change research expressed concern in relation to a potentially protracted debate over the UK’s role in Europe, and the shifting policy and regulatory landscapes at home and overseas. Despite a decision on Britain’s membership of the European Union potentially not taking place until 2017, 81% of respondents feel that their organisation is already being affected by the uncertainty of the result.

 

 

Brexit decision is impacting investment

In a climate of disruptive technology and game-changing innovators, the Barometer found that firms need to make bold investments in change in order to compete. At a time when innovation is essential simply to maintain a market share, a lack of innovation will result in these organisations going backwards.

Despite strategic investment’s key role in growth, uncertainty over the UK’s position in Europe is impacting both UK based business’s investment and the investment of foreign companies in the UK economy. The Siemens chief Jurgen Maier has stated that leaving the EU “would make life tougher for us as Siemens in the UK”, but worse than this "uncertainty is a real poison for investment."

Axel Weber, chairman of Switzerland’s UBS AG is more optimistic on the impact of the UK leaving the EU than Maier. He does not “think it would completely undermine the financial sector of London” as London could probably broker favourable terms. In the time being however it is impossible for UK-based banks to plan with exiting the EU meaning a whole new regulatory and business landscape.

Tricky year ahead

Whatever the decision of the referendum, based on the results of the Barometer it is clear that investment is the only route to growth and the uncertainty being caused by the Brexit decision is hurting investment. The sooner the decision comes the better for British business. 

[1] http://www.telegraph.co.uk/finance/newsbysector/epic/rbs/12011736/RBS-fears-UK-recovery-will-be-wrecked-by-Brexit-vote-uncertainty.html

 

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