Dave Brosnan, CEO, CNA Hardy, looks at the impact of Brexit on business confidence.

The continuing Brexit morass is denting business confidence on both sides of the Channel, according to CNA Hardy’s latest Risk and Confidence report (1). Much of the debate is out of the hands of business leaders, so how do they see the landscape of interconnected risks that we must all navigate?

(1) CNA Hardy Risk and Confidence report May ’19

Business confidence has fallen on both sides of the Channel. In the UK, confidence amongst business leaders has been in free-fall since May 2017. At that time, 71% of business leaders said they were confident in the ability of their business to grow and prosper. Two years later, just 36% said the same thing. That proportion slides to 34% as UK business leaders look ahead to October 2019, the current deadline for Britain to leave the EU. For May 2020, their sentiment stabilises slightly.

In mainland Europe, business leaders are more optimistic. Currently, half are confident that their businesses can grow and prosper. Even so, their confidence levels have dropped 20 percent compared to November 2018. They are slightly more positive looking forward to spring 2020, but pessimism over the outcome of the Brexit negotiations appears to remain.

Risk perception rises

UK business leaders are unsurprisingly pessimistic about the current risk environment. Currently, 83% believe it is moderate to high, and 80% predict a similar risk environment through to May 2020.

European business leaders were less jittery last autumn than their UK counterparts. Their risk concerns are predicted to rise again by May 2020 when the impact of Brexit is likely to take hold.

Political divide

Political risk topped the UK business leaders’ rankings this spring, and their concern continues through to next May. By contrast, 35 percent fewer continental European companies said political risk would be a major issue in 12 months.

Business leaders on both sides of the Channel believe that economic worries will increase. In continental Europe, they also predict technology risk (+15%) and supply chain risk (+33%) will rise up the risk rankings by May 2020.

Regulatory risk remains in the top half of all business leaders’ concerns across Europe. This is no doubt linked to the potential effect of Brexit on trading laws and regulatory requirements on both sides of the Channel. At the same time, business leaders appear relatively confident about their ability to manage the situation as it unfolds.

Investment stagnation

Brexit appears to be having a negative impact on planned investment in both the UK and continental Europe. Businesses are hesitating until the situation becomes clearer. This lack of investment appetite is particularly noticeable when it comes to plant and equipment and corporate development. It is also affecting technology, research and development (R&D), and talent on a smaller scale.

Reset the radars

Another key finding of our research is the continuing shift to technical solutions and digitisation by firms of all sizes. They are creating more connectivity and, in turn, generating new intangible risks.

[These risks will require a proactive and more collaborative approach to risk preparation and prevention, which will need to be understood and endorsed at a leadership level and throughout an organisation, and in conjunction with insurers and brokers.]

These risks will require proactive and collaborative identification and prevention. The organisation’s leadership will need to understand and endorse this approach. They should ensure it is implemented throughout the organisation in conjunction with insurers and brokers.

The demands of Brexit for such collaboration could forge an approach to the planning and preparation for evolving risks more generally. In turn, that could help business leaders make a successful transition not just into a post-Brexit world, but into an ever more interconnected risk environment.

This article is part of the FERMA/AIRMIC joint Brexit Newsletter which is designed to give risk professionals unique insight into Brexit related risks and mitigation strategies.

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