Successfully investing in Great Britain

published on May 16, 2018

  

How do you assess the UK's current economic situation against the backdrop of BREXIT?

Although the massive economic downturn expected after the Brexit referendum did not actually take place, the economic growth has now decelerated to only 1.6 per cent, which is far below the Eurozone's growth rate. The British pound remains weak against both the US-dollar and the euro. At the same time, inflation is approx. 2.3 per cent and still gradually rising. Uncertainty around the future relationship with the EU, being by far the UK's largest trading partner, is holding back investment in the UK or leads to a situation where investors decide to invest elsewhere. The fact that the British government itself is divided on the future course of relations with the EU does not help either. Especially the decision on whether the UK should remain a member of a sort of a customs union is still pending. Only in the case of the UK's separation from the EU, the country will be able to strike its own free trade deals with third countries.  This is one of the key goals pursued by Brexit hard-liners.  At the same time, however, the UK would have to give up free access to the EU territory. It is now probable that the current state of affairs will continue also after the official Brexit date set for 28 March 2019 and at least until the end of 2020, and a solution will be worked out until then.

 

How would you describe the investment climate in the UK? Which sectors offer the largest potential?

The effects of Brexit are felt to the extent that fewer investors decide to invest in the country. Enterprises continue “business as usual”, which results in a general economic slowdown.  Also consumer spending is decreasing because consumers are reluctant to spend expecting further negative developments.

 

In the light of the planned Brexit, automotive manufacturers have significantly decreased the level of their investment commitments. However, there are also some positive signals, e.g. with regard to announcements that new assembly lines will be established or the existing ones extended. Furthermore, the expansion of electro mobility as well as infrastructure and energy projects offer a lot of potential. The government is also considering additional tax reliefs in order to increase the UK's attractiveness to investors.  But no specific proposals have been presented yet, except for the reduction in the rate of corporation tax which was adopted a long time ago.
  

What challenges do German companies face during their business ventures into the UK?

The main challenge is the uncertainty resulting from the UK's exit from the EU. The exact effects will be known only when an exit agreement is negotiated or at least initially drafted.

 

How does Brexit affect the UK's attractiveness to highly qualified work force?

The attractiveness of the UK as a destination for potential employees is deteriorating since the aspect of employing EU foreigners in the UK in the future is still uncertain. Whereas the UK continues to be somewhat attractive to qualified workers due to the language itself and the internationally recognised educational institutions, its popularity is, however, decreasing since it is still uncertain whether foreigners will be allowed to settle here in the future. Consequently, immigration from European countries is on the decrease. Businesses are either planning assignments rather in the short term or are already considering alternatives, especially in terms of locations. 

 

In your opinion, how will the UK develop?

With a population of approx. 60 million inhabitants, the UK will remain a powerful player on the international scene. In addition, some new trade opportunities may, indeed, arise for the UK after breaking away from the EU. This is, however, in the long-term perspective. In the short and medium term, we should expect long periods of political and thus also economic uncertainty and a lack of predictability. These factors are generally considered to at least curb the economy. In this context, a slowdown in the positive economic trend that prevailed before the Brexit vote is expected to continue. In addition, the UK's standards and legislation are expected to drift off from those of the EU in the long term, which means that working on a cross-border basis will require more effort. This, in turn, means higher costs.

 
 

 Contact

Jan Eberhardt

Partner

+44 121 2278 963
+44 121 2278 999

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