The results of the recent snap election have failed to produce a strong and stable government and the uncertainty of how it will affect the UK or Europe long-term has put political risk – defined in layman’s terms as the risk of unpredictable or unsupportive government policy - once again at the forefront of business concerns.*
When surveyed earlier this year over half of business leaders believed that economic and political risk was the greatest threat facing their company, but believed that six months on this risk would have significantly decreased. However this result came before Article 50 was triggered or the snap election announced and these factors will likely lead to political risk moving up the agenda.
The effects of recent political upheaval are already being felt in these three areas:
• The Pound: The referendum result last June led to the value of the pound plummeting, and whilst it seemed to be stabilising the recent snap election has led to it falling again. In our survey twice as many business leaders saw the weakness of the Sterling as a negative factor than those who expect a positive impact and we expect this trend to continue.
• Exports & Imports: Because of the fall of the pound UK exports now appear comparatively cheap and multinational companies are reporting stronger earnings. However imports are becoming more expensive for the same reason, and we expect this may have a knock on effect on supply chains. Whilst only 8% of business leaders saw this as a top risk when surveyed, we expect to see this number increase.
• Investment in the UK: With the uncertainty around the UK’s political future companies are choosing to invest less in the UK property market than last year before the result of the EU referendum was announced. In addition many major financial companies are reviewing their domicile and planning to open European Union subsidiaries, to continue to serve their customers without disruption.
As this period of uncertainty continues and companies await the full effects of recent political upheaval to unfold, the key to success seems to be that nimble is the new normal.
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*This is from the results of our Risk and Confidence report where 500 business leaders of UK multinationals were surveyed on perceived risk and confidence in March and their predictions for six months in the future.