Uncertain times ahead thanks to Brexit, says Lloyds Banking Group’s Rhys Herbert

Uncertain times ahead thanks to Brexit, says Lloyds Banking Group’s Rhys Herbert

5th July 2019

Economic uncertainty has been extended in the UK this year and Brexit is affecting the confidence of many businesses, according to Rhys Herbert, Lloyds Banking Group’s senior economist.

There was standing room only in the seminar area at the Made in the Midlands Expo at the Ricoh Arena in Coventry on June 20 for Rhys Herbert’s talk. He spoke extensively on the economic outlook for the second half of 2019, backed up with figures from Lloyds Banking Group. 

Global growth has slowed in 2019, especially in the Eurozone, and this is having a pronounced effect on the manufacturing sector. He added there are also concerns in emerging markets and the US in regard to manufacturing. The ongoing trade tensions between the US and China – and other countries – is also affecting manufacturing confidence.

Rhys noted that the UK’s economy has continued to grow during recent years, including holding up well after the vote to leave the European Union in June 2016. But economic performance – quarterly and year-on-year – in the past 18 months has been mixed. For instance, in this time, the manufacturing sector’s performance has been much more volatile. 

Indeed, in four quarters since June 2016, the sector contracted, including towards the end of 2018. However, the sector rebounded strongly in early 2019.

But concerns about the potential impact of Brexit have increased among businesses over the past year as the deadline to leaving approached and then extended, Rhys said. Since the final quarter of 2018, confidence about Brexit has markedly declined – possibly as fears of a ‘no deal’ Brexit have increased – and now more businesses believe Brexit will have a negative impact on business than believe it will have a positive effect, according to the Lloyds Bank Business Barometer.

Overall, all sectors of business now say that Brexit is having a negative impact on their expectations for business activity. This is in contrast to 2018, where some sectors, notably transport, communications and construction, said that Brexit was having a positive impact on their expectations.

By sector, manufacturing is one of the most concerned about the impact of Brexit currently. Companies in the business services sector are the most worried about Brexit, closely followed by manufacturing and education/health/public services. 

Concern among manufacturing businesses about Brexit have markedly increased in the past year, as they have in transport and communications businesses. 

Indeed, business confidence overall has declined across the UK in the past year, again according to the Lloyds Bank Business Barometer. Every region reported that confidence has fallen back, with London and the Northeast of England seeing the biggest decline and Wales experiencing the smallest fallback. 

While confidence among businesses has fallen in the Midlands, the region is now the most positive in the UK despite ongoing concerns about manufacturing, ahead of the Northwest of England and London. Rhys added that he expects manufacturing to show more life in the second half of 2019.

Herbert concluded by noting that inflation is now back at around the CPI target level having picked up markedly last year. However, concerns about a tight labour market are increasing.

Global growth has also softened this year – including in the US and Eurozone – which means that markets are looking for interest rate cuts. Herbert added that it is expected that the Bank of England will announce more rate rises in the coming months, but they are still expected to remain low by historic standards.

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