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South: 2017 will be 'a difficult year' for UK businesses

21 July 2016
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The British economy is 'heading for a marked slowdown' warned Mark Berrisford-Smith, head of economics at HSBC, when he addressed nearly 200 business men and women at a special breakfast seminar organised by the bank and Rothmans accountants on 'Brexit Realities'.

At the seminar at Chilworth Manor, Southampton, the audience heard that Brexit will dominate the government's agenda in the months ahead. "Everything in the Conservatives' election manifesto will be quietly dropped. The Government will not have the time...," said Berrisford-Smith.

Dominating the agenda for the next two years will be whether Britain should join the European Free Trade Association, whether it can get into the World Trade Organisation, and what kind of trade arrangement we can strike with the EU.

"The problem is that we have put an impediment in the way of 60% of our trade by not having EU membership - 47% of our exports go to the EU and a further 13% go to countries that the EU has deals with. Being outside the EU will mean more cost, more paperwork and more delays."

Businesses were already starting to rethink their investment spending in the light of Brexit. "It's clear that investment intentions have weakened," said Berrisford-Smith.

The pound was also weakening. In 1992 sterling fell by 20% against the dollar; in 2008 it fell by 30% in six months. Now it was likely to fall by 20% over the course of the year. By the end of 2016 it was likely to be worth $1.20 and stay at that level through 2017, predicted Berrisford-Smith.

That might seem like great news for exporters, "but the truth is that most UK exports are not sold on price", rather on quality.

Sterling's fall meant rising import prices. The price of petrol at the pumps would rise, he said, and that would then feed through to the consumer economy, hurting sentiment.

And as import prices went up, inflation followed. He predicted that by the end of next year it would be 4%.

"People will be worse off, as inflation will outstrip wage rises, and then we will get a slowdown. A consumer retrenchment could capsize the ship."

As the UK headed for the marked slowdown predicted by Berrisford-Smith, he urged businesses to keep their eyes on the exchange rate and the inflation rate. These were the best indicators on the economy.

But he ended on a slightly more upbeat tone: "By 2018 we should be over the worst."


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