As global economic indicators foreshadow a slowdown, a sudden drop in retail sales shows that British consumers and businesses are becoming increasingly nervous. The trade tensions that have arisen between the US and China, and the resulting impacts on other major economies, including the EU, come at a very inopportune time for UK businesses.
Just two months from Brexit, and with the prospect of an EU deal becoming less likely by the day, UK consumers and businesses are forced to consider economic challenges on the local and international level. To meet these, businesses will be hard pressed to prepare for the economic disruption of Brexit, while also managing the impact of global economic instability.
Retail sales are falling fast
CBI’s retail sales balance shows that UK retail sales are falling faster than at any point since the 2008 financial crisis. Compared to a year ago, fully 58 percent of businesses surveyed indicated a drop in sales volumes, while just 10 percent experienced an increase. As a result, the volume of orders placed to suppliers fell to match, with 67 percent of suppliers reporting a decrease compared to last year.
Investors, who expected significantly higher sales, are expected to reduce investment, with the number of retailers intending to increase investment falling by 19 percent. All of this reflects growing uncertainty among British consumers, which necessarily impacts the confidence of businesses and investors.
European and global economic indicators are shaking business confidence
Preceding this relatively drastic decrease in sales is news of what is predicted to a potentially global recession. Increasing trade barriers and growing political tensions between the United States and China are impacting both economies, and having knock-on effects on their biggest trading partners, including the UK. Worse, other EU countries are showing signs of impending recession, which doesn’t bode well for UK companies who are looking to foreign markets for growth opportunities.
As a result of this uncertainty, investors have begun to invest more heavily in low-risk US bonds, prompting a dip in stock markets all over the globe. Since then, both Germany and Sweden have sold bonds offering negative yields. This indicates a high level of uncertainty among investors, who are effectively paying governments to borrow their money. All of the funds that are now invested into bonds, however, are no longer invested into businesses. With less investment to go around, businesses will be forced to find other sources of financing to manage budget issues, and to maintain growth.
UK Politics have put businesses on edge
As the world’s 5th largest economy, and one of the West’s most important economic centres, the UK would typically be in a good position to manage a global downturn. The country’s political situation has, however, created a larger problem. With Brexit delayed to October 31, and an EU deal becoming less likely by the day, British consumers and businesses are already on edge. Experts still predict that a no-deal Brexit, now widely assumed to be the most probable outcome at the end of October, will lead to major trade disruptions. Shipping ports and border points are still unprepared to manage the expected volume of customs checks, potentially leading to very long queues and delays. This could lead to shortages, which will inevitably further reduce sales figures for businesses in the near term.
Businesses need to get ready for a no-deal Brexit
According to government documents leaked to the press in mid-August, UK businesses, particularly SMEs, are still unprepared for Brexit. Critically, the government estimates that up to 85 percent of British lorries passing through the channel tunnel lacked the proper paperwork to pass French customs.
This lack of preparation is primarily due to the ongoing lack of clear information coming from the government. The government still hasn’t provided clear guidance on how businesses should prepare, and many have simply done nothing. This means that many businesses who rely on international markets for supplies or customers are still wholly unprepared to manage new tariffs and logistical challenges that will become a daily aspect of their businesses on October 31.
For UK consumers, the news simply doesn’t sound encouraging. It’s little surprise that they are tightening their belts and saving their money for a rainy day. Businesses, for their part, need to focus on doing their part to prepare for the eventuality of a no-deal Brexit. This is necessary both to bolster consumer confidence, and to ensure that they aren’t faced with new bureaucratic puzzles on top of a global economic downturn.