UK Firms May Reduce Capital Spending in the Next Three Years

A dangerous combination of the coronavirus pandemic, a potential no-deal Brexit, and geopolitical conflict has led most UK Firms to reconsider their investment spending.

A survey administered by the accountants at Deloitte yielded responses from finance directors of different UK firms. It found that 65% of the respondents believed it was the combination of the three above that will lead firms to invest less in the coming years. Slow recovery looms for most as many will struggle to return to the pre-COVID19 sales level.

About 80% of the survey respondents see a decrease in revenues in the next 12 months. Only 49% are hopeful that sales will return by the end of the second quarter next year, 2021. The rest see a continuing fall in sales revenue. This gloomy outlook from business leaders reveals the general doubt around the likelihood of a V-shaped recovery for the year.

The prime minister boldly expects most of the economy to open by Christmas with employees returning to office work in city centres and towns.

However, the Office for Budget Responsibility does not share the same optimism. The independent forecaster of the Treasury forecast a 2022 recovery for the economy. The office sees an increase in the unemployment rate of more than 10%.

Make UK, the representative of manufacturing and engineering companies has shared that the industrial sector faces a huge wave of job losses. They have hope that the Treasury would extend subsidies until the next year to stop the job loss. Without the extension, a significant loss of highly skilled jobs will occur in a magnitude not experienced since the 1980s. According to Make UK, the job retention scheme should extend for another six months. However, Rishi Sunak plans for it to end in October.

The manufacturing organisation says that 53% of firms are planning to make redundancies in the coming months. This move despite an improvement in sales and orders. A staggering 11%-25% of employees could become redundant.

Chief Executive of Make UK, Stephen Phipson says that the measures would only be equivalent actions taken by European competitors.

"At present, the prospect of a V-shaped recovery for the industry seems remote. Therefore, if we are to mitigate the worst impact of potential job losses, the government must extend the furlough scheme for key strategic sectors to provide them with vital breathing space," he said.