Destination USA: UK firms look stateside for growth

December 2019 | FEATURE | BOARDROOM INTELLIGENCE

Financier Worldwide Magazine

December 2019 Issue

Uncertain is a word that has regularly been used in recent years to describe the outlook for UK economic growth. A great deal of this uncertainty is, unsurprisingly, being laid at the door of the UK’s expected departure from the European Union (EU) – a scenario that is prompting UK companies to look to the West for opportunities for growth.

The British Chamber of Commerce (BCC) reduced its growth forecast for 2020 to 1 percent (down from 1.3 percent in 2019) and to 1.2 percent (down from 1.4 percent) in 2021. “Our forecast suggests that the UK economy is likely to remain on a disappointingly subdued growth path for some time to come,” says Suren Thiru, head of economics at the BCC. “The downward pressure on business activity and investment intentions from the unwinding of stocks is likely to be exacerbated somewhat by increasing cost pressures and Brexit uncertainty, slowing overall economic growth.

“The deteriorating outlook for business investment is a key concern as it limits the UK’s productivity potential and long-term growth prospects,” he continues. “A messy and disorderly exit from the EU remains the main downside risk to the UK’s economic outlook as the disruption caused would increase the likelihood of the UK’s weak growth trajectory translating into a more pronounced deterioration in economic conditions.”

In the view of Sean Whelan, managing partner at ECI Partners, a disorderly exit from the EU is the key risk to the UK’s growth outlook. “The threat of a no-deal Brexit has never been more real in the three years since the EU referendum in June 2016, but the findings in our ‘Growth Index 2019’ survey also reveal the resilience of growth companies,” he suggests. “They remain both outward-looking and confident as to how they can continue to grow against such a weak political backdrop.”

Stateside

With their prospects for growth seemingly underwhelming in the medium-term at least, UK businesses are increasingly turning their attention stateside. Testifying to this, the ECI Partners survey notes that 75 percent of UK companies pointed to North America as their preferred export destination in the next 12 months – up from 71 percent in 2018 – ahead of continental Europe at 70 percent.

“Amid a slew of challenges, such as political turbulence, a deepening skills shortage and stunted GDP growth, UK companies, according to the ECI report, are bullish as to their prospects for growth over the next 12 months.”

At the centre of this preference for the US as an ideal investment location is the strength of its economy, which, although forecast to slow in 2020 and 2021, remains formidable. Furthermore, for those companies looking to move their base of operations, the US is a preferred overseas location, along with Singapore, the Netherlands and Ireland. “It is clear that the UK’s growth companies are alive to the strong performance of the US economy and are trying to make the most of the opportunity that it presents,” adds the ECI report.

Additional headwinds

While Brexit fears are clearly the main cause of current business discomfort, there are additional headwinds concerning UK companies, such as the UK skills shortage. “Although the skills gap poses a significant challenge for the UK’s growth businesses, respondents to our survey are finding ways to ease the pain,” states the ECI Partners report. “The most popular course of action, as voted by 28 percent of companies, is to invest in staff.

Many companies are planning to work more closely with universities to gain talent quicker, as well as running apprenticeship schemes,” continues the report. “In addition, some are looking to bring in overseas talent, while others are looking to develop in-house training schemes or starting up training academies.”

Bullish

Amid a slew of challenges, such as political turbulence, a deepening skills shortage and stunted GDP growth, UK companies, according to the ECI report, are bullish as to their prospects for growth over the next 12 months. In fact, 81 percent of respondents anticipate growth of more than 10 percent during this period.

“Despite the current UK political situation, growth companies are taking heart from the likelihood that uncertainty is likely to be relatively short-lived,” notes the report. “While 74 percent of survey respondents fear political uncertainty in the short-term (over the next five years), a mere 25 percent name this as a concern in the long-term.”

So, while UK economic growth appears to be less than perfect in the short-term, in the medium to long-term it may begin to post a tentative recovery, with US investment a key catalyst for improvement.

Fraser Tennant