No business likes uncertainty, and with Brexit’s outcome still in a state of flux, our latest survey reveals that business confidence on both sides of the Channel has taken a battering over the past six months. This uncertainty is impacting on UK and European firms’ investment plans, which appear to be on hold, and it’s raising concerns over political, economic and regulatory and compliance risk.
Confidence takes a hit
In the UK, C-suite confidence has been on the slide since Autumn ’17, when 71% of business leaders were confident about their business prospects before Brexit negotiations got underway. This confidence level had plummeted by November last year to just 40%, dropping again this May to 36%. There appears to be a modicum of optimism that the October 31st deadline might secure some certainty, with confidence levels predicted to rise slightly to 40% by next May.
Europe, which led the world in terms of confidence six months ago, became the least confident region globally after the UK in May. The impasse in Brexit negotiations saw confidence levels drop by 20 percentage points as the Brexit deadline came and went with no perceived progress on the likely direction of travel.
Stagnating investment plans
These diminishing levels of business confidence are driving high levels of caution about investment in business fundamentals. The damaging consequence is that fewer companies are planning to maintain their investment levels in plant and equipment or corporate development. Investment in technology, research and development and talent likewise is on the wane. Traditionally, businesses have prioritised these activities above all others in support of topline growth. Companies are simply not prepared to put capital at risk in an environment where unpredictability reigns.
Risk radar readjustments
The UK sees its biggest issue as economic (18%) above political, technology and cyber (all at 14%). In Europe, economic risk also leads (16%), but shares the stage more evenly with cyber and technology (both at 13%).
For the first time, however regulatory and compliance risk rises into the top three in Europe and is ranked fourth in the UK. This strong showing reflects growing anxiety about the timing and manner of Brexit, which raises significant questions about the laws and regulations that will govern trading relationships, export/import requirements and the standards to which industries, products and services must adhere to post Brexit. Business leaders appear concerned that changes may have to be implemented in haste, creating a significant compliance burden.
Whatever the Brexit outcome, the reality is that businesses in the UK and Europe face a new era of raised economic, political and regulatory uncertainty – with all the inherent risks that entails in terms of supply chain certainty and reputation management.
As an industry of risk managers, brokers and underwriters, we will need to pull together ever more closely to help businesses face this new era of risk.
By Dave Brosnan,
CEO, CNA Hardy