FTSE gloomy about economy but fears lessen over Brexit

Boards lack confidence in the economy, with 69% of respondents to a survey of FTSE 350 companies published today by The Chartered Governance Institute believing that the UK economy will decline in the coming year. Just 7% expect an improvement and only 10% expect an improvement in the global economy.

Despite the gloom, fears appear to be lessening over Brexit with fewer companies now rating an exit as damaging. UK PLC is on the fence about the effect of no-deal Brexit, however, with 40% believing it would be damaging, 40% believing it would not and 20% unsure.

The key findings of the summer FT-ICSA Boardroom Bellwether survey, a biannual survey in association with the Financial Times which canvasses the views of the FTSE 350 on the business environment and key governance issues, are as follows:

• UK economy: Confidence is low with only 7% of respondents anticipating an improvement in the next twelve months and 69% predicting a decline – a slight improvement on winter 2018 when 2% predicted improvement and 81% predicted a decline. Confidence is significantly lower than seen in the pre-EU Referendum survey of spring 2016 when just 24% of respondents expected a decline and 13% predicted an improvement. However, predictions about the outlook for companies’ own industries have rallied slightly with 43% predicting a decline (50% in winter 2018) and 35% predicting no change, up from 26% six months ago.
  ‘The continuing uncertainty about what a post-Brexit Britain might look like, muddled even further at the time of the survey by the Conservative party leadership contest and differing views with regard to a no-deal Brexit, has undoubtedly contributed to the pessimism that people are feeling,’ says Peter Swabey, Policy and Research Director at The Chartered Governance Institute
• Global economy: The majority of respondents (51%) predict a decline in global conditions, with just 10% predicting an improvement and 23% expecting conditions to remain the same.
  ‘Few predict an improvement in global economic conditions. With the trade warbetween the US and China still playing out, over twice as many people now fear a decline than was the case in summer 2018 when just 24% predicted a decline.’ (Peter Swabey)
• Brexit: Parts of the FTSE seem to be rallying in terms of how they view the impact of leaving the EU. Now 3% of respondents view leaving as positive, the first time we have seen an expression of this sentiment since summer 2017 when 2% of respondents saw an exit as positive. Fewer companies now rate an exit as potentially damaging (59% compared to 73% in winter 2018) and the number of respondents predicting no change for their business has increased from 28% to 38%. That said, the number of companies considering moving, or already having moved, a substantial part of their business from the UK to somewhere in the EU has increased – 12% as opposed to 4% six months ago and 3% a year ago. The number not considering this option, but that already have an EU subsidiary has risen from 25% in summer 2018 to 32%. 
  ‘The fact that more companies have contingency plans in place might explain why just 29% of respondents are increasing inventory to prepare for a no-deal Brexit and fewer than half (49%) regard Brexit as a principal risk. That said, the number who consider Brexit to be a principal risk has increased since summer 2018 (up from 39%).