Brexit optimism from CEOs is masking true fears

Plans for the creation of a Brexit museum that celebrates Britain’s 45-year ‘struggle for independence’ were revealed this week.

The museum will apparently celebrate Eurosceptic heroes who challenged Britain’s EU membership, from Labour left wingers like Tony Benn in the 1970s to the UK Independence party leader Farage.

Farage, we are told, ‘has 15 years of UKIP in his garage’. My hope is that it will stay there.

On the business front, Deloitte tells us that weak growth has replaced Brexit as the biggest risk identified by UK corporates. Deloitte surveyed 106 finance directors from 350 of the UK’s largest companies in March, just after the transition deal was signed.

The deal – which gives many businesses a 21-month window to continue as usual after the March 29, 2019, deadline – appears to have mitigated many concerns. Brexit has been pushed off the top of finance directors’ list of risks for the first time since the referendum.

This bears out what many chief executives are reporting anecdotally. Don’t, however, underestimate the optimistic, can-do attitude of many chief executives.

It’s their job to make the best of what is thrown at them. Few want to be seen to be talking down their company’s chances, not least because when their remuneration is linked to share prices it hits them directly in the pocket.

Survey after survey of business leaders comes back positive right now and yet the UK is still on course to be the worst performing economy in the G7 group of countries in 2018, having gone from leader to last place in a little more than two years.

William Jackson, the chairman of private equity investor Bridgepoint Capital, is unusual among business leaders in not sugar-coating the reality.

Jackson is currently deciding on the future for Pret a Manger, one of the UK’s best-known sandwich shops, with 500 branches worldwide and earnings of more than £100m a year. A sale or a stock market flotation is pending but it is Brexit that is causing Jackson the most concern. ‘This is going to be a really expensive decision for the UK economy. The price of the politics is going to severely damage the prospects of a generation. It’s going to hit employment prospects. It’s going to hit economic performance… It’s going to be difficult,’ Jackson told the Financial Times.

Another measure of the fallout from Brexit is the increased cost to regulate the 58,000 companies that operate in the UK’s financial sector. The Financial Conduct Authority expects to spend 12 times more than it did last year preparing for Brexit, with its costs attributed to leaving the EU forecast to hit £30m in 2018. Who is getting this money? Well, mostly lawyers. The FCA has already hired 15 extra lawyers specifically for Brexit tasks and will hire a similar number this year.

Brexit stumbling blocks aside, the pressure on the Bank of England to raise interest rates continues with one rate setter, Ian McCafferty, saying this week that an increase should happen without delay. McCafferty thinks the prospect of faster pay-rises and a strong pickup in the global economy means that a modest rise is needed now.

Should this happen, the UK would be following a global trend to ‘normalise’ interest rates. The head of Austria’s central bank has also been urging the European Central Bank to think about withdrawing the ample financial stimulus that has been pumped into markets since the financial crisis. European central bankers are worried that prolonged low interest rates risk feeding another asset bubble.

For those who would like to see Brexit itself consigned to a museum, there was also a very real reminder that the last 18 months were not simply some elaborate war game. From this week, Eurostat – the European equivalent of our own Office for National Statistics – will publish data on population, unemployment and GDP growth – but the UK will not be included in the statistics.