Business optimism at a seven year low
Business optimism has hit a seven year low, according to business advisory firm BDO. The accountancy firm publishes a monthly index based on a national survey with 4,000 different respondents from companies employing approximately five million employees across a range of sectors. Last month’s survey shows the lowest level of optimism since September 2012, when the UK was fighting off a double-dip recession.
BDO partner Peter Hemington said: “Continued uncertainty about Brexit has led to a severe worsening of expectations about our near economic future. What we’re now seeing is a sudden realisation that a no-deal Brexit is both a real and imminent possibility. With optimism at levels last seen when we just avoided double dip recession in 2012, UK businesses expect a zero-growth economy as the backdrop to their plans. This matters, because worried businesses don’t hire or invest, creating the conditions for a marked downturn.”
Locally the uncertainty about what will happen with Brexit is affecting businesses from the biggest – GSK, with a turnover of £30.8 billion and more than 95,000 employees worldwide – to the smallest independent businesses in the High Rd. Worst affected are the housing market and anything connected with it, and the luxury goods market. “Even if people have the money, because they feel insecure about the economy and their job, they don’t spend” says Chris Couch, owner of Tribe, the rug shop in Devonshire Rd. “Last year we had a good year, but as we get closer to the cliff edge, consumer confidence goes and people start look more closely at their expenses and put projects off”. His comments are echoed by business after business in Chiswick.
How Brexit uncertainty is affecting businesses in Chiswick
“I’m treating it like a recession,” says Dominic Hughes, owner of the Pot Pourri florist at 255 Chiswick High Road, “it is very difficult to plan ahead at the moment”. He is experiencing the knock on effect of the stagnant housing market: “Because people aren’t selling as many houses in the Brexit uncertainty, we aren’t getting offers to put flowers in them for viewing”. He is also on the receiving end of cutbacks by larger companies: “Corporations have had their budgets cut which has had a knock on for us, because we don’t get as many corporate clients for events any more”. Pot Pourri lost their contract to supply GlaxoSmithKline last year: “They cancelled their contract for flowers in the building – vases on reception and in the restaurants and private areas. Their orders were whittled down and eventually we just had to go”.
GlaxoSmithKline is cutting back on inessentials because it is having to put aside serious money to plan for Brexit, protecting its supply chains and trying to minimize disruption to patients. Based in Brentford on the Great West Rd, GlaxoSmithKline researches, develops and manufactures pharmaceutical medicines, vaccines and consumer healthcare products. It employs more than 95,000 people and operates in 150 countries. Setting out its approach to Brexit in its 2018 annual report, the company say they have allocated up to £70 million to implement relevant changes over the next one to two years. The costs include ‘updating packaging, securing additional warehousing and supporting employees in obtaining settled status’ as well as ‘arranging the retesting and certifying of our medicines in Europe’. They anticipate the subsequent and ongoing costs arising from Brexit, which ‘could include further customs duties and will include the cost of duplicate testing and release of our products’ will cost them approximately £50 million per year.
Luxury goods most affected
Dominic has seen a decline in business in Chiswick High Rd since 2016. “When you look at figures since 2016, there has been a decline in business along the High Road … more than 40 shops have closed.” The reasons for that are many and well documented but Dominic believes Brexit is definitely a contributory factor. “Anyone in the luxury goods end of things has been affected”.
Chris Couch, co-owner and co-director of Tribe, the rug shop in Devonshire Road, agrees: “This March has been one of my worst” he says. His handwoven rugs are also luxury items. “Our industry is being heavily impacted because it is a discretionary spend, a rug is the finishing touch compared to an essential item such as a sofa” he says. “Even if people have the money, because they feel insecure about the economy and their job, they don’t spend. Last year we had a good year, but as we get closer to the cliff edge, consumer confidence goes and people start look more closely at their expenses and put projects off. They sit tight until they feel more secure”.
Weakness of the pound
Brexit uncertainty is hitting Chris in two ways: the reluctance of consumers to buy and the weakness of the pound. He buys in dollars and the volatile pound against a strengthening dollar has resulted in a 20% cost increase from his suppliers, which he says he cannot pass on to consumers. “The business is holding up, it isn’t all doom and gloom – but it is difficult times” he says. “For me, at the moment, the main problem is Brexit uncertainty. Whatever happens, once we have a bit of certainty back, people will just get on with their lives.”
Lin Leung, co-owner of Decorexi, the homeware shop at 58 Chiswick High Rd, also attributes a recent decline in business to Brexit: “2013-15 business was great. What you have seen in the last two years has been a steady decline, a decline in income and a decline in people coming through the door”. She blames the weakness of the pound and the impact that has on the cost of living. “People have less spending power. Once our existing stock depletes, we have to replace it and if the suppliers’ costs go up, our costs go up, and the consumer pays the price. All our suppliers and manufacturers have restructured and raised their costs, there is not one supplier or manufacturer that has not. This has forced us to increase our prices or stop selling”.
Andy Sands, owner of the Chiswick Camera Centre reports a similar story: “Business has been tough for the first three months (of this year). It’s the uncertainty. Whichever way it goes, half the people will be annoyed, at least they will know what is going to happen. People don’t spend money when they don’t know what is going to happen”.
Andy is not concerned about products becoming unavailable, as he says most of his suppliers have taken extra space in bonded warehouses, which allows them to stockpile without paying import duty in the short term. But he says this might push prices up further down the line: “If we end up remaining, all the companies I deal with have spent large amounts of money on preparing for leaving, and that’s lost revenue – which could be spent somewhere else. That could have a knock on effect going forward.”
Stagnant housing market
The one sector which usually does well when the housing market is depressed is the building trade, as people decide to improve their existing property rather than moving house. Roger Wheatland, who sells Kitchens from his shop Osborne Interiors in Fauconberg Rd, says: “There’s a general Brexit uncertainty definitely affecting the housing market. People are staying put and doing rear extensions or side extensions instead of moving.” But even so, bookings are down. “I am getting more long-term inquiries about work in the autumn, rather than people wanting a new kitchen doing it anytime soon. That’s unusual, people are normally on a quicker turnaround.” He gets a lot of work through a website which offers comparisons on the costs of a new kitchen nationally. They too are feeling the pinch: “That website is operating well below 50% of inquiries compared to last year. Where they were getting 8 leads (positive inquiries) a day, they are now getting three.”
Photograph by Anna Kunst
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See also: Brexit acrimony