With the on-going beauty pageant to find the next leader of the Conservative Party and the next PM set to continue until the third week of next month, uncertainty is the only thing in plentiful supply. Of the six surviving candidates (with another round of voting due today) all promising to deliver Brexit but all equally devoid of ideas as to exactly how this can be done businesses are increasingly concerned that the UK will crash out of the EU with no deal and no transitional period in November. Whilst none of the candidates claim to want a “no deal” exit, two are committed to leaving on 31/10/19 with or without a deal (Raab & Johnson), Hunt claims to be ready to leave without a deal, Gove is saying that parliament cannot be sidestepped and it will not allow a “no deal” (so he is saying that if he becomes PM he will not leave the EU without a deal) and the final candidate, Stewart, claims that leaving without a deal would be disastrous (he is pushing the existing, heavily rejected, May deal). It is not certain that the EU will extend the notice period again, even if the new British PM asks.
Against this backdrop, UK businesses have been stockpiling goods and materials which is bad for their balance sheets and profitability, but means that they will be able to continue to trade (until the stocks are depleted) in the event of a chaotic exit.
The British Chambers of Commerce (BCC) says that the trend to stockpiling is not sustainable and warns that business investment is contracting, diverting funding from activities which should boost long-term economic growth.
Whilst BCC has upgraded its 2019 forecast because of the demand generated by stockpiling, it is predicting lower growth in 2020 and 2021: 2019 growth is projected at 1.3% (up from 1.2%); 1% in 2020 (down from 1.3%); and 1.2% in 2021 (down from 1.4%). However, these forecasts assume that Brexit will not be chaotic, an optimistic position given current uncertainty.
The BCC’s Suren Thiru, head of economics said:
"The revisions to our forecast suggest that the UK economy is likely to remain on a disappointingly subdued growth path for some time to come. The downward pressure on business activity and investment intentions from the unwinding of stocks is likely to be exacerbated by increasing cost pressures and Brexit uncertainty, slowing overall economic growth across the forecast period. The deteriorating outlook for business investment is a key concern as it limits the UK's productivity potential and long-term growth prospects."
Mr Thiru warned about the consequences of a “no deal” Brexit, noting: "The disruption caused would increase the likelihood of the UK's weak growth trajectory translating into a more pronounced deterioration in economic conditions".
However, it appears that the Tory leadership contenders are deaf to the concerns of British business and its representative bodies.