Investment decline could put growth at risk

The Spring 2019 Santander Trade Barometer research suggests many companies are planning to invest less in their businesses over the next 12 months as uncertainty undermines their confidence.

UK businesses anxious about uncertainty are holding back on plans for crucial investment according to the research, putting their growth prospects in both domestic and international markets at risk. It also suggests businesses’ investment intentions have declined over recent months – a change that coincided with increased fears of a no-deal Brexit. Just half of businesses (52%) plan to hire new staff over the next 12 months, only 37% are planning investment in product development, and just 33% will invest in new equipment.

The cost of uncertainty While the instinct to rein back on investment in the face of uncertainty is understandable, there is a risk many businesses are storing up further problems for themselves. For example, for businesses that are fearful about the near-term performance of the UK economy, international expansion could offer a route to continuing growth. Yet businesses that do not currently have any international presence at all are more cautious in their investment plans than those already selling overseas or planning to do so soon. Almost a quarter (23%) of domestic-only businesses that we surveyed plan zero investment for the year ahead. Our research does show that international businesses and, in particular, businesses aiming to expand overseas soon are more likely to still be planning investment than domestic-only businesses.

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Trade Barometer Spring

 

Innovation spending feels the strain The Spring 2019 Trade Barometer also includes worrying data on innovation spending. For example, only 27% of companies currently spend a regular percentage of their turnover on research and development (R&D). Similarly, only 27% intend to invest in digital transformation over the next 12 months. This is concerning in the context of other research from Santander that shows a clear link between investment innovation and outperformance. Our recent Trailblazers study of high-growth businesses suggests that while more than six in 10 fast-growing businesses have a record of consistently increasing their investment, less than half of slower-growing businesses can say the same. Similarly, while 43% of fast-growing companies have recently increased investment in technologies such as digitalisation, the figure falls to only 19% amongst lower-growth businesses. It’s clear that a failure to invest will potentially undermine businesses’ efforts to improve their productivity, damaging their efficiency and competitiveness – and therefore their growth potential. There is no doubt many companies face a major dilemma. They are naturally reluctant to over-commit to investment during a period when they have unusually little visibility of their future growth prospects. Despite their very real concerns, the international trade and investment realities of distance and historical relationships mean that the EU – the UK’s largest trading partner - will continue to be enormously relevant. What is likely to be required is greater technical, in-country and sectorial support, and our unique set of country and sector specialists can help businesses through this challenging period.

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