Clear signs that Brexit concerns are starting to bite emerged as businesses flagged a freeze on spending and delays in hiring workers amid plunging confidence over the prospect of leaving the EU without a deal.
Two major UK companies warned that economic uncertainty was prompting business customers to sit on their cash instead of making investments to support growth and jobs.
Micro Focus, the FTSE 100 IT services company, said revenue would be lower than expected this year because business customers were putting off spending due to the uncertain outlook. The company said business had deteriorated since early July.
In a trading update the Berkshire-based firm said: “Weak sales execution has been compounded by a deteriorating macro environment, resulting in more conservatism and longer decision-making cycles within our customer base.” Shares fell by almost a third.
In a further sign of businesses tightening their belts Hays, Britain’s biggest recruitment company, said trading in the UK had slowed in the past few weeks as Brexit uncertainty damaged confidence among its business clients.
Hays’ chief executive, Alistair Cox, said: “In the UK I would say all of the subdued sentiment is in some way related to the Brexit process and the time it’s taking. It is the main cause for concern.”
Business investment in factories, machinery and technology has fallen in the UK as companies have diverted money to Brexit preparations and have shelved spending on projects over the looming threat of a chaotic exit from the EU.
The Confederation of British Industry has predicted the threat of no-deal will cause the biggest drop in business investment since the financial crisis, and companies’ failure to spend contributed to the first contraction in economic output for almost seven years in the second quarter of 2019.
The two companies issued their warnings as figures from the European commission showed a sharp fall in British economic confidence to its lowest since early 2012. The UK economic sentiment indicator for August dropped to 92.5 from 94.3 as retail confidence plunged to a low not seen since the 2009 recession and sentiment in Britain’s dominant services sector fell suddenly.
Suren Thiru, the head of economics at the British Chambers of Commerce, said reports of deepening economic gloom were not surprising with uncertainty over Brexit increasing.
“We are hearing this from businesses across the UK,” Thiru said. “They are taking a step back and putting off investment and recruitment decisions because there isn’t a path forward for Brexit and economic conditions are weakening.”
Economists increasingly think the UK could be heading for a recession – two consecutive quarters of contraction – after output shrank in the three months to June. The European commission’s figures suggest the economy may not have bounced back in the current quarter.
Thiru said businesses were frustrated that Brexit had dragged on for more than three years but he warned that leaving the EU without a deal would make matters worse. “There will be questions about the UK’s trading relationship with the EU which will need to be answered.”
With manufacturing and construction shrinking and companies unwilling to invest, the economy has been kept afloat by consumer spending supported by rising wages and high levels of employment.
But the European commission’s survey showed UK consumer confidence weakening, including households’ view of their own finances – an important measure which could feed through to weaker high street spending. Consumers’ expectations for inflation reached their highest since 1990 after the pound’s sharp fall since the threat of a no-deal Brexit increased.
Gabriella Dickens, an economist at Capital Economics, said rising wages meant consumers should be able to keep spending but that there were signs households could soon be gripped by a sense of malaise.
“There are some signs that households are becoming more susceptible to the Brexit chaos which is already keeping a lid on business spending,” Dickens said. “What happens with Brexit in the coming months will determine how likely households are to spend.”