Businesses are starting to get fed up as Brexit batters the economy

Slowly but surely a conversation is developing around Brexit and its malign economic effects.

An important contribution was made to it last week when Andy Street, the Tory mayor of the West Midlands, said: “Business is telling me that there are some consequences and if you look at this region, our deterioration in the export performance is definitely partly to do with [Brexit].

“Partly it’s to do with global supply chains as well, but I’m not being naive about that, that’s what I hear from businesses day after day.”

Street speaks with authority here because, unlike much of the current Tory party, he has actually run a business, in the form of the John Lewis Partnership. Quite successfully, too.

Evidence backing his claims of businesses repeatedly raising the issue of Europe came courtesy of the Institute of Directors and its latest Economic Confidence Index for the month of July.

It found pessimism to be rife, with the headline number rolling in at minus 54. While that’s up a little on June’s dismal minus 60, it still represents a rotten result, one which is set to have highly damaging consequences for the UK economy.

So what’s creating this grim mood? The UK’s relationship with Europe was one of the principal reasons respondents cited, alongside inflation and Britain’s current political instability.

IoD members who expressed pessimism about UK plc were then asked: “Which, if any, of the following factors best describes the reason you said you were pessimistic?”

They were required to pick one answer from a menu. Nearly one in five (18 per cent) chose Europe. It came second only to inflation (29 per cent).

Given the latter is expected to hit double figures, and precipitate a 0.5 per cent interest rate rise this week, the fact that relations with Europe was picked above it by so many is highly significant.

A second question asked them to choose factors having a negative impact on their businesses from another menu of options. They were not limited to just one this time.

Some 42 per cent ticked Britain’s trading relationship with the EU. It was, in fact, the fourth most widely selected “problem” trailing only the cost of energy (51 per cent), global economic conditions (43 per cent), and that perennial bugbear, skills shortages/employee skills gaps (45 per cent).

It goes without saying that this will have consequences. When businesses lack confidence in the economy they lack the confidence to invest. The IoD’s series shows that happening in real time, with a clear downward trend in investment intentions emerging since the start of the year.

As many firms are now planning to cut investment as are planning to increase it, which is the lowest response since October 2020. You may recall, that was smack in the middle of the pandemic.

Businesses and their lobbyists are still treading carefully when it comes to what they will say about Brexit. They are, for the most part, not quite ready to tell the government that it is presiding over a colossal foul-up, guided perhaps in part by the latter’s vindictiveness under Boris Johnson, which doesn’t look likely to change much.

“Perceived risks in the macroeconomy continued to drive the behaviour of business leaders in July, with concerns around inflation, our relationship with the EU and political instability causing investment intentions increasingly to be put on hold,” said the IoD’s chief economist Kitty Usher.

For his part, Street limited his asks to “more help for exporters” who are currently being strangled by Brexit-induced red tape.

The cautious tone may start to change if the government continues to put the UK’s flailing economy at risk by fomenting needless rows with Brussels for political purposes while failing to lift so much as a finger to address the problems Brexit has created.

The negative real-world consequences are mounting, as the UK economy languishes at the bottom of the G7’s growth league table with little prospect of climbing out of the hole it is in under the current myopic management.

As Brexit continues to batter Britain, this conversation will continue to quietly cut through the sound and fury of government rhetoric. And people will hear it because they can see what’s happening with their own eyes.