Capital expenditures and the rate of hiring are set to slowdown in the wake of Britain choosing to leave the European Union.
According to a survey done on Britain’s biggest companies, their future is beset by doubts over Britain choosing to leave the European Union and as a response, they have slashed their investment plans.
According to the survey, 82% of CFOs from FTSE 350 and large private limited companies expect a cut in capital spending in the next year. According to Deloitte, this is up by 34% from this year’s first quarter.
The survey by the accountancy and audit firm is the first clear sign of the battered business confidence that has emerged with Britain choosing to leave the EU. The results of the survey only goes to corroborate the Bank of England’s view on the British economy, which it had predicted that it would weaken.
Significantly Britain’s central bank, left the decision to lower interest rates on hold last week with Andy Haldane, the central bank’s chief economist, saying a “material easing” of policy will be required next month to help cushion the expected slowdown of the country’s economy.
Deloitte’s survey was conducted between the period of June 28 to July 11, i.e., after the referendum and before Theresa May emerged as Britain’s new prime minister.
“Perceptions of uncertainty have soared to levels last associated with the euro crisis five years ago,” said Ian Stewart, Deloitte’s chief economist. “The spike in uncertainty has had a toxic effect on business sentiment, with optimism dropping to the lowest level since our survey started in 2007 — lower, even, than in the wake of the failure of Lehman in late 2008.”
According to the results of the survey, 58% of CFOs felt that capital expenditures are set to reduce “somewhat” or be lowered “significantly”.
73% of the respondents felt less optimistic about their company’s financial prospects, while 83% expect a slower pace of hiring.
“CFOs do not seem to be waiting for growth to slow before adjusting direction. There has been a marked shift to more defensive balance sheet strategies in the wake of the referendum,” said Stewart.
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