UK car investment tumbles but consumers resilient
British customers still relatively buoyant, with 'no evidence of spending being hit by worries over Brexit'
London — Investment in Britain's car industry has slumped due to fears of a disorderly no-deal Brexit, adding to signs of a manufacturing downturn even as consumers stay relatively resilient, surveys and company comments showed on Wednesday.
Carmakers see no deal as the worst possible option, the country’s leading automotive lobby group said, while in the wider manufacturing segment a survey from the Confederation of British Industry said optimism among smaller British companies had tumbled to a three-year low in July.
Yet an indicator of consumer confidence from market researcher GfK rose unexpectedly in July, while executives from fashion retailer Next and banking group Lloyds both said they had seen no negative Brexit impact on consumers so far.
Britain’s new prime minister, Boris Johnson, has repeatedly cautioned that if the EU refuses to renegotiate the Brexit divorce deal agreed by his predecessor Theresa May he will lead Britain out on October 31 without a deal.
Sterling has fallen more than three cents since Johnson was named as prime minister just over a week ago. Many investors say a no-deal Brexit would send shockwaves through the world economy and tip Britain’s economy into a recession.
In an indication of the hit from more than three years of Brexit-related political uncertainty, investment in Britain’s car sector fell more than 70% in the first half of 2019, the Society of Motor Manufacturers and Traders (SMMT) said.
“The fear of no deal is causing investors to sit on their hands,” said CEO Mike Hawes. “The worst outcome would be no-deal. That's what they fear, that is why they’re not investing.
Britain's overwhelmingly foreign-owned car industry was rebuilt from the 1980s by the likes of Japan's Nissan, Toyota and Honda, which were encouraged by former prime minister Margaret Thatcher to use the country as a launchpad into Europe.
The SMMT said investment had fallen to £90m in the first half of 2019, against £347.3m in the same period in 2018 and £647.4m a year before.
Carmakers have also spent at least £330m on Brexit contingencies such as securing warehousing space and stockpiling parts in order to mitigate the impact of possible delays to the movement of models and components at ports.
Supporters of a decisive Brexit say that while there could be some short-term difficulties, the disruption of a no-deal Brexit has been overplayed and that in the long term the UK would thrive if it left the EU.
Leaving the EU was once far-fetched: just two decades ago, British leaders were arguing about when to join the euro. Now, British government policy is to leave, “do or die” in Johnson’s words, on October 31.
If it leaves without a deal, Britain would quit the EU’s 500- million-strong single market and customs union overnight, falling back on World Trade Organisation rules that could mean many import and export tariffs. There would be no transition.
Three years of political squabbling over Brexit has left allies and investors puzzled by a country that for decades seemed a confident pillar of Western economic and political stability. That has made investment in the UK a hard sell in boardrooms from Tokyo to New York.
Still, full-year auto investment, based on new publicly announced decisions on fresh spending, will be boosted by a roughly £1bn move by Jaguar Land Rover (part of Tata Motors) to make electric cars in Britain.
The British consumer is relatively buoyant, according to Next, whose CEO Simon Wolfson said he had seen no evidence of spending being hit by worries over Brexit.
“The encouraging thing is the government is now seriously preparing for no deal,” Wolfson said. “If the country is well prepared and we still have free flow of goods through our ports ... then I can't see any reason why there should be any major impact on the consumer.”
Banking group Lloyds also said it had seen little impact on consumers so far.
GfK's indicator of consumer confidence rose unexpectedly in July to -11 from -13 in June, beating forecasts in a Reuters poll but broadly in line with its range in 2019.
“Consumers have generally been less affected by Brexit uncertainties than business,” GfK executive Joe Staton said. “However, the coming months to the October 31 departure date will test the strength of this confidence.”