Analysis: UK crisis forced 'unwell' companies to stop investing

• Nervous companies scrap investment plans
• Forced Borrowing Cost Rise by Mini-Budget
• Employers want stability, not tax cuts

LONDON (Reuters) – British business owners are pulling back investments as the Westminster crisis drives up borrowing costs and loses confidence in an economy once seen as a haven of stability for businesses .

Businesses have struggled to navigate a difficult political situation since Britain voted to leave the European Union without a plan. The aftermath from the budget has taken it to another level.

Last month, business leaders had to contend with sweeping tax changes, a crashing pound and soaring borrowing costs.

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A two-year plan to help homes and businesses with high energy costs has been shortened to six months to save money.

With Jeremy Hunt taking office on Friday, the UK has four finance ministers in just four months. Prior to the 2016 Brexit vote, Britain had her four finance ministers in her 23 years.

“It’s totally ridiculous,” Nimisha Raja told Reuters at a factory producing air-dried citrus fruits, vegetables and ingredients. “I have no idea what they’re half talking about.”

Raja sold his home and coffee shop to start Nim’s Fruit Crisps, based in Kent in the South East of England, over seven years ago.

When post-Brexit bureaucracy made selling to Europe prohibitive, she developed new products for the UK, including citrus slices for gin and vodka drinks. Faced with the pandemic, she provided material for her box of subscriptions.

But with interest rates rising, she is reluctant to borrow again. She’s not alone, according to a Deloitte survey of her top finance directors. 56% now believe credit is costly, forcing them to adopt defensive strategies to cut costs and manage cash.

“If you borrow a lot of money, you may never pay it back. It’s too risky at this point.”

“The small budget completely knocked us out because it was supposed to be all about growth, and it was nothing.

From one disaster to the next

In central England, Gary Seale is also wondering where to go with his Idry business, which manufactures air dryers for the care industry.

Truss’ promises of tax cuts and deregulation initially led to a surge in international orders after the pound plunged. “We think this is great. Go ahead,” he said.

But when he combined that income with a 10-year loan to see if he could finally launch a new version of his product in the UK, he found borrowing costs skyrocketing.

“We just seem to crash from one economic or political disaster to the next,” Seal said.

Britain’s latest crisis began on September 23, when new Prime Minister Truss and then-Chancellor Kwasi Kwarten announced £45 billion in cash-strapped tax cuts to lift the economy out of the doldrums.

The pound crashed, government borrowing costs skyrocketed, lenders canceled mortgage deals, and the Bank of England had to step in to prevent the collapse of some pension funds.

Truss initially said the market turmoil was linked to international events, but then changed his mind. This followed earlier U-turns by Truss and her predecessor Boris Johnson on issues such as tackling obesity and the windfall tax.

Tesco (TSCO.L) chairman John Allan, Britain’s largest supermarket chain, expressed frustration in June, saying the company had been planning for years. Real results in 1 week. ”

The chief executive and chairman told Reuters the impact would be felt for years. said there is.

“Irrelevant” Tax Cuts

“The main factor is that the investment makes sense,” Advertiser Martin Sorrell said. “And if you have the degree of uncertainty that you have at the moment, it’s not.

A U.S. tech executive told Reuters at a recent meeting of the Conservative Party led by Truss that corporate tax was a “rounding error” for his global business and that issues such as visas were a bigger factor in investment decisions. Told.

The board trade group also said it was not seeking a corporate tax cut.

Sorrell, who built WPP into the world’s largest advertising firm before founding S4 Capital, said the crisis hit at the worst possible time, just as the company planned its budget.

“When you run a global business, the center of attention shifts to areas of the world where you think there is more certainty,” he told Reuters.

One retail executive, who spoke on condition of anonymity, said companies will plan carefully going forward. He said there was a general distrust that a country known for having “fiscal responsibility to the core” had failed so badly.

UK business investment, which leveled off after the 2016 Brexit vote and then plummeted during the pandemic, was down 6% in the second quarter of this year from levels six years ago, with global in stark contrast to its industry peers.

It is likely to slip into recession as energy and food prices rise.

“The uncertainty is the biggest, there’s a lot of volatility ahead,” Stuart Machin, head of retailer Marks & Spencer (MKS.L), told investors last week.

“It’s all a crisis.”

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Written by Kate Holton. Additional reporting by Andrew MacAskill and Andy Bruce.Editing by Catherine Evans

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