Growth in the UK private sector picked up speed, according to a survey published on today (3 March) by an employers group but Britain’s smaller companies are hoarding cash and cutting investment as confidence starts to wobble as the government sets off down the uncertain path of leaving the EU.
The Confederation of British Industry (CBI) said its monthly measure of growth rose to +15 from +10 in the November-January period, suggesting there was still little impact on business so far from last year’s Brexit vote.
Companies expected similar growth over the next three months, the CBI said.
“The economy is growing solidly, with consumer-facing sectors leading the way for now,” CBI chief economist Rain Newton-Smith said.
“However, with inflation set to rise even further, this will dampen households’ spending power, and growth is likely to slow as the year progresses.”
But companies with revenue of less than £1 million (€1.17 million) expect to invest an average of £21,690 in their businesses in the next six months – a fall of 74% compared with July, Lloyds Banking Group said on Friday following the latest results of its six-monthly survey.
This is the biggest drop since the bank added the question about investment plans in 2015 to its long-running Business in Britain survey of small businesses.
“Businesses need to be careful that in cutting back on investment to boost resilience they don’t put the brakes on too hard,” said Jo Harris, a managing director at Lloyds, one of Britain’s largest business lenders.
Sitting on cash could help companies weather any economic slowdown, but bankers say that reduced spending also threatens to dampen growth prospects for the economy.
The head of commercial lending at another major bank said the last time that he saw smaller companies hoarding money to a similar extent was during the 2008 global financial crisis.
The banker said companies were paying off overdrafts and other loans amid concerns that the economy may suffer after Prime Minister Theresa May seeks to begin the formal process of negotiating a divorce settlement with the EU later this month.
“Customers are nervous … they are worried that as the news of Brexit negotiations begins to filter through then sentiment will dip,” the banker said.
There have been some signs recently that consumers are spending less as rising inflation, pushed up by the post-Brexit vote fall in the value of the pound, eats into their spending power. Surveys have also shown that growth in the services and manufacturing came off recent highs at the start of the year.
Lloyds said economic uncertainty was identified as the main threat over the next six months, followed by weaker UK demand and political uncertainty.
Britain’s businesses and banks have largely defied expectations that the economy would suffer an immediate blow from the referendum result in June last year, but in recent weeks there have been signs of mounting concerns as the real Brexit process gets underway.