Will ‘Boris bounce’ for businesses last?

A number of economic indicators suggest UK businesses are enjoying a “Boris bounce” in consumer confidence and spending after the Tories’ decisive general election win in December broke the deadlock over Brexit.

Years of political gridlock and uncertainty around the UK leaving the EU has “resulted in investment and hiring decisions being postponed, inevitably having a knock-on effect elsewhere”, says Sky News.

It means GDP growth for 2019 is expected to match the 1.3% it hit in 2018, making both years the weakest for economic growth since the UK emerged from the global financial crisis a decade ago

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“But the fact that the election has delivered a decisive majority for one party, for the first time since 2005, has delivered an element of certainty for business leaders - not only over Brexit in particular but over the wider economy in general,” says Sky News.

Reuters says that “although it remains to be seen if the pickup in confidence will translate into a meaningful boost to growth, economists have been heartened by the range of indicators that have perked up over the last month”.

British companies are enjoying their best month in more than a year, according to the IHS Markit/CIPS UK Purchasing Managers’ Index (PMI), “amid signs that a more stable political backdrop and resolution to Brexit will boost business this year”, says This is Money.

The survey showed growth across services companies resumed in January for the first time since August, while a downturn in manufacturing eased, “weakening the case for a Bank of England interest rate cut this week” says Reuters.

Tim Moore, associate director of economics at IHS Markit, said: “The modest rebound in new work provides another signal that business conditions should begin to improve in the coming months, helped by a boost to business sentiment from greater Brexit clarity and a more predictable political landscape.”

But not all are so optimistic.

According to more than 85 leading economists who responded to the Financial Times’ annual survey of UK economic growth, the coming year holds little prospect of a lasting improvement.

The paper reports that “the majority predicted that any pick-up in growth following Boris Johnson’s decisive election win in December may be short-lived because businesses still have little idea of the UK’s eventual trading relationship with the EU, and the UK’s chronic productivity problem is unlikely to ease”.

“In the medium term, few investors expect British growth to speed up much from its current pace of just over 1% a year” says William Schomberg for Reuters, noting that “immediately after the shock decision by British voters to leave the EU in 2016, the PMIs suggested the economy was nose-diving, only to stabilise soon afterwards”.

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