The political impasse over Brexit threatens to “suffocate” business investment across the UK, with the economy grinding to a halt as a temporary boost from stockpiling comes to an end, the British Chambers of Commerce (BCC) has warned.
The organisation said firms were putting resources into contingency plans, such as stockpiling, rather than investing in measures aimed at economic growth, which is “simply not sustainable”. As a result, the economy is expected to register zero growth in the second quarter of the year, following a 0.5 per cent expansion in the first quarter.
Business investment is forecast to contract at a faster rate this year and recover more slowly in 2020 than expected in previous forecasts, the BCC states in its latest report. The leading business body said political uncertainty – including the growing possibility of a no-deal exit – was expected to “suffocate” investment activity in the near term.
Adam Marshall, the BCC’s director general, said the next prime minister must find a “pragmatic” way to break the deadlock in Westminster and reach an agreement to prevent further economic slowdown. The chamber also urged the next inhabitant of No 10 to use the forthcoming comprehensive spending review to confirm delivery of major infrastructure projects such as HS2.
The BCC’s forecasts for the years ahead assume the UK avoids a “messy and disorderly” exit from the EU, describing it as a “downside risk”. The BCC’s head of economics, Suren Thiru, said: “The revisions to our forecast suggest that the UK economy is likely to remain on a disappointingly subdued growth path for some time to come.
“The downward pressure on business activity and investment intentions from the unwinding of stocks is likely to be exacerbated by increasing cost pressures and Brexit uncertainty, slowing overall economic growth across the forecast period. The deteriorating outlook for business investment is a key concern as it limits the UK’s productivity potential and long-term growth prospects.
“A messy and disorderly exit from the EU remains the main downside risk to the UK’s economic outlook as the disruption caused would increase the likelihood of the UK’s weak growth trajectory, translating into a more pronounced deterioration in economic conditions.”
Mr Marshall said businesses had been left with no choice but to spend time preparing for the unwanted possibility of leaving the European Union on 31 October without a deal.
“Businesses are putting resources into contingency plans, such as stockpiling, rather than investing in ventures that would positively contribute to long-term economic growth,” he said. “This is simply not sustainable. Business communities expect the next prime minister to quickly find a sensible and pragmatic way forward to avoid a messy and disorderly Brexit.”
Additional reporting by agencies
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