Greg Wright: Without clarity over Brexit, the economy is heading for trouble

Business leaders are seeking clarity over Brexit Picture: PA
Business leaders are seeking clarity over Brexit Picture: PA
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WHILE the political world is obsessed with Brexit, there has been plenty of sobering business news to underline the potential threats to the UK’s economy.

Shares in building supplies firm SIG plummeted after the business warned that a deepening downturn in the UK and German construction markets would hit profits.

The Sheffield-based business shed more than a fifth of its share value in early trading after it told investors that annual profits in its core business will be “significantly lower” than previously predicted.

It said trading conditions have particularly worsened over “recent weeks” as economic uncertainty has continued to ratchet higher.

The company expects much lower underlying profitability compared to previous expectations in both its specialist distribution and roofing merchant businesses.

“This deterioration in trading conditions has accelerated over recent weeks, and political and macro-economic uncertainty has continued to increase,” the company said as it entered its “traditionally strongest” trading months of the year.

Berenberg analyst Lushanthan Mahendrarajah said: “There’s also this factor about how much of your weighting in your profit is geared into September to November time, just when Brexit negotiations are heating up, which means uncertainty is at a peak.”

“Any company that has a big chunk of their profit coming in September and October, there’s more of a risk of not hitting their full-year expectations.” Mahendrarajah said.

Shore Capital analyst Graeme Kyle said the warning reflected “political turmoil impacting construction project decisions in the UK”.

The mood on the high street is also gloomy. British retailers endured their worst September since at least the mid-1990s, according to surveys that painted a sombre picture of household demand ahead of Brexit.

The British Retail Consortium (BRC) said total retail sales values declined 1.3% in September compared with the same month last year.

Average growth over the last 12 months slowed to 0.2%, the weakest rate since the BRC began its records in 1995.

A separate survey published by payment card company Barclaycard showed broader consumer spending — which includes retail sales — rose 1.6% in annual terms in September.

While official retail data has painted a healthier picture of consumer demand, surveys like the BRC’s have suggested household spending — one of the few drivers of economic growth this year — may be starting to wane. The Barclaycard survey showed 41% of Britons were “actively pessimistic” about their ability to spend on discretionary items, up five percentage points from August.

“With four months of negative sales growth since March, the ongoing political gridlock surrounding Brexit is harming both consumers and retailers,” BRC chief executive Helen Dickinson said.

The uncertainty over Brexit is causing damage to the real economy. While the politicians strut and pose, companies are worried about losing customers. If workers are concerned about losing their jobs, they are less likely to splash out on big ticket items.

Of-course, factors other than Brexit are coming into play here, such as global trade tensions and internal problems in other European nations.

But until clarity is provided about our relationship with the EU, we can expect to see more troubling headlines.