With the British Chamber of Commerce’s recent release of their Quarterly Economic Survey, the fears of economic analysts and business owners alike have been confirmed: The UK’s economy is weakening. A combination of slowing global trade, rising international trade barriers, and the unending uncertainty of Brexit at home are beginning to take their toll on businesses.
While the UK economy has, against the expectations of experts, steadfastly held its ground in the past few years, a number of key indicators show that a major loss of momentum has occurred in the first quarter of 2019. This news, combined with the greater global economic situation and the UK’s own political turmoil, leaves both the manufacturing and services sectors waiting for an end to the uncertainty that has left them unable to plan for the future with confidence. Facing decreased cash flow for the first time in nearly a decade, businesses need access to financing that will give them the flexibility they need to adapt.
Key indicators show reduced growth
Slowing growth in the manufacturing and services sectors is attributable to multiple compounding factors. Not only has sales growth slowed down significantly, businesses are also beginning to experience difficulties in getting the funds they need to adjust to changing conditions and to continue to drive future growth.
Sales growth is stalling
The balance of firms reporting increased sales in the manufacturing sector has dropped to +14 for export sales, and +15 for domestic sales, which is their weakest level of growth since Q4 of 2016. The services sector, which accounts for just over 80 per cent of the UK economy, was hit much harder. The balance of firms reporting improved sales dropping to +0 for exports, and +10 for domestic sales. The halt of services export growth in particular, which is valued at an annual £277 billion, is telling.
Cash flow is being squeezed
While sales growth, for the most part, has only slowed, the balance of firms reporting improved cash flow has dipped into the negative, with both manufacturing and service sector firms at -1. This is particularly problematic for the businesses most affected by stalling sales growth, since they need funds to adapt and overcome emergent barriers to growth. Businesses need access to capital to develop new innovative solutions, and to explore new markets.
Investors are starting to turn away
Over the past few years, UK businesses have relied on strong foreign investment to keep them growing. Today, though, investment intentions for both manufacturing and services sectors are at their lowest level in 8 years, signalling a changing financing environment for businesses. In light of the UK’s presumed upcoming departure from the EU, it’s clear that a global recession would hit Britain very hard. The shock of losing its international trade agreements and EU financial support at a critical time will disrupt businesses of all kinds, but particularly services that rely on those agreements to remain competitive.
Moreover, hard numbers show that many of the UK’s top manufacturers will become less competitive after Brexit, due largely to increased production and export costs. British steelmakers, already under pressure due to US tariffs, pay up to 50 per cent more for electricity than their EU competitors. This, combined with the added prospect of trading under WTO rules, is deeply discouraging to investors in UK steelmakers and other energy intensive manufacturers. Considering that there has been no sign from the UK government that any transition would be competently or swiftly handled, it’s clear that businesses will be largely left to find their own solutions during this downturn.
Businesses need to act to secure funding for the future
With little in the way of helpful structural changes or financial support on the horizon, businesses need to look out for their own interests. Cash flow management tools like invoice finance and standby credit give businesses the fast access to funds that they need to quickly take advantage of growth opportunities, or to manage potential disruptions.
Tools like these are critical to a business’ ability to preserve their momentum, and ensure that they can continue to grow even as new barriers to growth emerge. Aside from the UK, many of the world’s largest economies, including the US, China, and major EU countries, are showing signs of a slowdown.
This combination of factors places a great deal of pressure on UK businesses, though it also represents an opportunity. Those businesses who find ways to maintain stable finances and continue to drive growth will be better able to outcompete and replace competitors who don’t. By finding the best ways to react to adversity productively, businesses can place themselves in a stronger and more resilient position in the future.