UK firms to lower investment after Brexit, says accountancy body

Pro Remain EU supporters protest outside parliament in London, Britain on Sept 5, 2016.
Pro Remain EU supporters protest outside parliament in London, Britain on Sept 5, 2016.PHOTO: EPA

LONDON (REUTERS) - British firms are likely to cut investment during the rest of this year and in 2017 due to the Brexit vote, and the government must show quickly how it will move forward with leaving the European Union, a professional body for accountants said.

The forecast from the Institute of Chartered Accountants in England and Wales added to signs that companies are responding to June's referendum with more caution than Britain's consumers, who have largely taken the referendum result in their stride.

The ICAEW predicted business investment would fall by 2.9 per cent in 2016 and a further 3.7 per cent in 2017, reversing a 5 percent rise in 2015.

The forecast came from an analysis by consultants Oxford Economics of a quarterly ICAEW survey published on Aug 1. The survey showed a steep fall in sentiment after the vote to leave the EU on June 23.

Subsequent surveys from other organisations showed a partial rebound in sentiment in August, though manufacturers have still expressed concern about investment.

"In these uncertain times, it is imperative that the new government urgently starts making some decisions to encourage and inspire investment in the UK economy," Stephen Ibbotson, ICAEW's director of business, said.

He called on ministers to outline their plans at the Conservative Party's annual conference in October, and no later than when new finance minister Philip Hammond gives his first budget statement which is likely to be in November.

Prime Minister Theresa May has given few clues about her strategy for leaving the EU which is likely to lead to less access for British firms to the bloc's single market of 500 million consumers.

The government has pointed to some corporate takeovers, such as the US$32 billion takeover of British technology firm ARM by Japan's SoftBank, as a sign of long-term business confidence in post-Brexit Britain.

The ICAEW predicted economic growth in 2017 of 1.1 per cent, down from 1.8 per cent this year. It forecast the unemployment rate would rise to 5.3 per cent from 5.1 per cent in 2016 while wage growth would edge up to 1.7 per cent, helped by the introduction of a new higher minimum wage.