14 Apr 2015

If UK plc is putting the skids on spending, that’s bad news

Amid all the political backstabbing and accusations of unfunded this and unfunded that, a very worrying development seems to have occurred. Worrying, that is, for the British economy. So unsure are Britain’s chief financial officers about the outcome of the general election that they’ve started to rein in spending.

More than half – 63 per cent – of those questioned by Deloitte, the accounting firm, rated the level of uncertainty facing their business as above normal. They see post-election uncertainty, policy change and an EU referendum as the greatest threats to UK business.

We all know businesses love certainty. When they’re sure about the future and what’s going to happen, they’re comfortable to spend. To invest the hundreds of thousands of pounds in that new piece of kit for the factory or a new IT system to improve efficiency. It’s the thing that turns a growing economy into an economy that’s firing on all cylinders.

Business investment had started to pick up and corporates were beginning to regain some of their swagger. So if this survey shows risk appetite and spending is on the wane, that’s not good news at all.

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Businesses are looking at this election and see uncertainty whichever side wins. On the one hand, a Labour government will clamp down on energy firms and could raise taxes, and on the other, a Conservative administration could lead the UK out of Europe – the home for three-quarters of Britain’s exports.

As a result, a net 53 per cent of the 108 CFOs questioned said they expect corporates to increase capital spending during the next 12 months, down from a peak of 80 per cent a year ago. And now just 51 per cent said they believed companies would be prepared to take risks on their balance sheets, down from a high of 72 per cent just two quarters previously.

A further 66 per cent of CFOs think changes to general levels of regulation are likely to be negative, and half of them say the same about taxes changes. It’s easy to get bogged down in the numbers but, rest assured, UK plc putting the skids on spending could be bad news for all of us.

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