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The voice of British business: why we need to retain barrier-free trade with the EU
The CBI represents the employers of over seven million people in the UK. Matthew Partridge talks to its principal economist about how post-Brexit relations with Europe should look.
The prime minister needs to clarify the position of EU nationals in the UK
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Speaking to individual business leaders and entrepreneurs can be extremely useful when looking at how Brexit is affecting the private sector. However, trade associations can provide a broader overview of what's going on, and the biggest concerns, simply because they interact with so many different companies.
The biggest British trade association is the Confederation of British Industry (CBI). Its 1,500 direct members include most large companies, and another 188,500 firms are covered through associations that are affiliated to the CBI. Together these firms employ seven million people roughly a third of the entire private sector.
Alpesh Paleja is the CBI's principal economist. As part of his job, Paleja pays close attention to trends in business confidence and investment. Immediately after the EU referendum there was a plunge in business confidence. The good news is that the CBI's surveys suggest that "confidence has partially recovered over the past year". However, Paleja warns that this recovery is far from complete, and is extremely fragile. While "small projects are now back on the table" and "those agreed before the vote are still going ahead", "uncertainty around Brexit "is definitely hitting big longer term decisions". A recent CBI survey said that 40% of firms say Brexit has affected their business decisions, virtually all negatively.
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Similarly, Paleja has mixed views about what the future has in store for the UK economy. On the one hand, he is relatively positive about Britain's growth prospects in the next few months, with strong evidence of "near term strength". However, he also thinks that in the longer term, uncertainty will lead to a softening of growth. He also thinks that it is "difficult to say at this stage" whether the rest of Europe will use Brexit as an opportunity to try to persuade firms to relocate from the UK, though relations with counterparts in the EU-27 remain "quite constructive" at present.
These mixed views are reflected in the CBI's official growth forecast, published last month. It predicted overall growth of 1.6% for this year, falling to 1.4% in 2018. This is an upward revision to the projections of 1.3% and 1.1% that were made earlier this year, but the expected quarterly growth rate of 0.3% for the foreseeable future is half the level of the rate of expansion between 2013 and 2016. Low wage growth and higher inflation will also hit many households.
According to Paleja, both the CBI and the business leaders that he has talked to want the government to focus on keeping close economic relations with the EU. In practical terms this means that they "want Britain to remain in the single market and customs union over the transition period", even if such a transition period takes longer than expected. Any permanent trade deal should also focus on "retaining barrier-free trade" as much as possible, letting firms take part in EU funded project, and immigration policy that "is as close to the status quo as possible".
Immigration is shaping up to be a major issue for British business freedom of movement allows them "ready access to a supply of skilled and unskilled labour", especially in the context of the wider UK skills gap. Conversations with individual CEOs and managing directors have also revealed that the uncertainty is causing many EU migrants to return home, leading to a "brain drain". Paleja emphasises that concern about changes to immigration policies is "broad based" while manufacturing and agriculture stand to be "badly hit", "even professional and financial services firms are worried about the implications of future restrictions".
"The position of EU nationals in the UK needs to be properly clarified", he says. At the end of last month, the prime minister announced measures designed to protect their rights, including the idea that EU citizens who have lived in the UK for the past five years could get settled status, entitling them to permanent healthcare and employments rights. However, while this is "a step in the right direction", Paleja warns that "a great degree of uncertainty still remains" and that these commitments will "need to be translated into detailed proposals, followed by action" because "the clock is ticking".
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