• Chris King

Continued Brexit Uncertainty Knocks Business & Consumer Confidence

Updated: Aug 2, 2019

At a glance

- Forecasts for business investment growth for 2019 were downgraded from -1.0% to -1.3%, and from 0.6% to 0.4% for 2020.

- The Scottish Consumer Sentiment Indicator reports that Q1 of 2019 produced the lowest score since the survey began in 2013, signalling a decrease in the current sentiment and future expectations of consumers for the economy.

- The British Chambers of Commerce said future UK GDP growth would diminish, downgrading their initial growth projections from 1.3% to 1% for 2020, and from 1.4% to 1.2% for 2021.


On the 17th of June the Fraser of Allander Institute published the Scottish Business Monitor report for 2019 Q2, highlighting that while the Scottish economy is growing, business capital investment and leasing has continued to decline. The Bank of England echoed similar sentiments for the wider UK, and joined the Fraser of Allander Institute in attributing this decline and recent economic volatility on Brexit uncertainty. On June 19th the Bank of England Monetary Policy Committee unanimously voted to maintain the interest rate at 0.75%, citing the downgrading of the UK GDP growth forecast, as a result of Brexit. In announcing their interest rate and economic growth forecast, the Monetary Policy Committee stated their “economic outlook will continue to depend significantly on the nature and timing of EU withdrawal, in particular: the new trading arrangements between the European Union and the United Kingdom; whether the transition to them is abrupt or smooth; and how households, businesses and financial markets respond”.

Business Confidence

The British Chambers of Commerce has highlighted worsening business investment as a particular concern when forecasting UK economic growth. Suren Thiru, the Head of Economics at the British Chambers of Commerce stated in a BBC interview that "the deteriorating outlook for business investment is a key concern as it limits the UK's productivity potential and long-term growth prospects". Expanding further, they suggested that uncertainty surrounding Brexit had not only caused businesses to decrease capital investment activities and new projects but had also led to an increase in businesses stockpiling raw materials and other crucial resources to avoid possible supply chain disruptions. Whilst this surge in stockpiling stimulated GDP growth of 0.5% in the first three months of 2019, businesses now have large stockpiles of inventory which they will utilise without needing to place future orders, leading to a decline in economic momentum further into 2019.

Figure 1: UK Business Investment | 2009-2018

Figure 1 shows UK businesses are in the midst of experiencing the longest sustained decline in investment since 2009, and highlights the extent to which investment growth has cooled off since the Brexit referendum in Q2 of 2016. As uncertainty from Brexit does not appear to be improving, it is highly likely that the decline in UK business investment will continue its downward trend, departing from the growth seen over the last 10 years.

Figure 2: Business Sentiment on the Impact of Brexit on Investment | 2019

Figure 2 depicts the attitudes of Scottish businesses towards investment activity, both current and future, and starting new projects in the wake of Brexit uncertainty. Whilst a large percentage of Scottish businesses remain neutral on investments and new projects, there are still overwhelming numbers of businesses that are hesitant to commit due to Brexit. Only a handful of businesses, less than 15%, are prepared to progress future investment and new projects regardless of Brexit outcomes.

Consumer Confidence

The Scottish Consumer Sentiment Indicator polls 2,000 adult’s current sentiment and future expectations of three indicators: Scottish economic performance, security of Scottish households’ financial position, and attitudes towards spending money. A net balance is generated for each indicator, which then forms the composite CSI (a negative balance indicates that the overall consumer sentiment is negative and vice versa).

Figure 3: Scottish Consumer Sentiment Composite Indicator | 2013-2019

Since Brexit, the CSI experienced the largest decline ever for one quarter, becoming negative for the first time since the indicator was measured (Q2 2013), and has remained negative ever since. The latest Scottish Government’s Consumer Sentiment Indicator reports another negative economic outlook from consumers across Scotland, continuing the trend of negative sentiment (Figure 3) and is now at a record low. This figure would suggest that further slowing of economic growth is likely as consumers tighten the purse strings and reduce their household spend.

Figure 4: Scottish Consumer Sentiment Indicator - Current Sentiment vs Expectations | 2013-2019

Figure 4 shows the difference between the current sentiment and the expectations of Scottish consumers. In Q2 2018, the expectations of consumers became worse than the current sentiment, something that hasn’t occurred since CSI was first measured in 2013. According to the Scottish CSI data, as the UK moves towards the revised October 31st Brexit deadline, 65% of Scottish consumers expect the economy to be worse in the future than it currently is now. This pessimistic consumer outlook adds further pressure to businesses seeking positive economic growth in the future.

Comparison of UK & EU Sentiment

Figure 5 outlines the weighted combined sentiment of industry, services, consumers, retail, construction, and financial services for each country in the EU.

Figure 5: European Economic Sentiment Indicator | May 2019

When comparing the sentiment of the UK as a whole to the EU using the composite Consumer Confidence Indicator, the UK fared poorly, producing the second lowest score of any EU member country.

Figure 6: European Consumer Confidence Indicator – General Economic Situation Past Year vs Next year | May 2019

Figure 6 compares the consumer economic confidence score for the past 12 months with the expectation for the next 12 months. In both metrics, the UK scores lower than almost any other EU country. Consumers in France, Lithuania, and Bulgaria were slightly more pessimistic than the UK consumer on the past year’s economic performance. Whereas only Bulgarian consumers were more pessimistic than UK consumers regarding the future economic situation for the next 12 months, whilst the EU average was half as negative as the UK in both metrics.

Brexit as an opportunity

Whilst the data shows a clear decline in growth for business investment activity and consumer confidence across the UK, there are still ways in which businesses can position themselves to use Brexit uncertainties to their advantage. To borrow some wise words from Warren Buffet “be fearful when others are greedy and greedy when others are fearful”. Businesses that are prepared to develop a business strategy that sets out triggers for calculated investment and growth opportunities are likely to benefit the most from Brexit uncertainty. First and foremost, evaluating the current business model to account for any possible disruptions to core business activities, particularly those related to trade to / from the EU, is a sensible place to start. Looking further afield, what growth strategies are most appropriate for your business during deflated markets; mergers and acquisitions could provide significant opportunities to reduce costs through synergies, expand market share and territory, or diversify products and services to become more vertically or horizontally integrated.

Remember, when markets are deflated, costs of goods and services (or even whole companies) are also likely to be deflated as businesses to look to maintain sales levels and retain competitive advantage. Whilst your competitors might be holding off on proposed investment activities and new projects, you could be positioning your business to come out of a weakened market primed for growth and ready to capitalise on the strengthening market. Focusing on what disruptions could take place and where they could come from, as well as opportunities that may present themselves in tough markets, will allow your business to take advantage of Brexit uncertainty and provide a competitive advantage over your competition.

If your business has not developed a plan for Brexit, or is looking to explore opportunities in a post-Brexit market, contact us so we can help you develop a strategy to better prepare your business for the road ahead.

Strathearn Strategic Consulting


+44 (0) 7913 413 699