Business confidence rebounds after post-Brexit slump

Stephen HarmstonYour contact for Omibus
September 02, 2016, 5:30 AM GMT+0

The dust is settling on the EU vote and businesses are showing signs of resilience, for now at least

The YouGov/Cebr UK Economic Index shows that business confidence in the UK rebounded in August as it regained much of the ground it lost in the immediate aftermath of Britain's vote to leave the EU. Our data shows that business confidence increased to 109.7 in August meaning it has recovered more than half the losses it endured following the referendum, when it fell from 112.6 to 105.0. However, it is still below where it was before the European Union vote.

This increase in business confidence has come primarily from an improvement in businesses' expectations for the next 12 months in terms of capital investment, revenue from domestic sales and revenue from exports. Measures looking back at these areas over the past 12 months have remained relatively stable or, in the case of exports, have improved.

With the post-Brexit panic abating and many indicators signalling a reasonably robust short-term outlook, businesses are suggesting a greater confidence for the coming 12 months when it comes to their own operations. The data, drawn from over 500 monthly interviews with organisational decision makers, shows that businesses remain broadly positive about their own prospects in the coming year. Before the EU referendum 53% were optimistic in their outlook for the next 12 months, a figure which dipped slightly to 46% in July and has risen marginally to 48% in August. Only 23% are pessimistic on prospects.

However, one red flag in these figures is the level of pessimism about the UK economy that the Brexit vote has engendered in British businesses. In June, 25% were pessimistic about the coming 12 months, a figure that almost doubled to 49% in July. Yet while many metrics have rebounded notably in the past month, approaching half (45%) of businesses still remain pessimistic about the UK economy over the coming year. If these concerns materialise into reality, businesses could rapidly rein in their investment and hiring plans.

The YouGov/Cebr UK Economic Index collects data from both consumers and businesses to give a rounded view of economic sentiment in the UK. The strengthening of businesses' confidence over the past month echoes a bounce-back in consumer confidence over the same period. Last week, our consumer confidence figures showed their highest month-on-month improvement in three and a half years.

For the most part, the panic we saw straight after June 23 has been replaced by calm. In the short term at least, a more positive outlook from businesses and consumers will help grease the wheels of the economy – spurring spending and investment. What happens in the longer term is the big mystery. Once the UK shows its hand on Brexit and invokes Article 50 things could change for the worse quickly. But as businesses and consumers don’t know when this will happen, they have seemingly decided to just get on with it.

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