Irish firms downbeat on Brexit talks as UK mortgages drop and France issues warnings

By Eamon Quinn

Irish firms are increasingly downbeat the Brexit talks will work out well, a major survey has shown, as evidence mounts in Europe of the damage that Brexit already entails.

This includes sinking mortgage approvals in the UK and advice issued by the French government for its businesses to be prepared.

The KBC Bank and Chartered Accountants Ireland autumn survey “hints that a notably more uncertain outlook may already be leading some firms to curtail the pace of growth in activity and employment” even as output continues to expand, it said.

Brexit concerns meant Irish business sentiment dropped back to levels last seen in late 2012, KBC and the Chartered Accounts said.

“This seems to reflect the increased threat that the UK could fall out of the EU as soon as March 2019 without a transition deal or clarity about the future trading relationship with our near neighbour.

“Companies have started to consider the possibility of a breakdown Brexit in five months rather than the Brexit bump that a carefully choreographed soft Brexit more than two years away would likely entail,” according to the survey.

The fears of Irish businesses “mirrors a similar deterioration in UK order books that underlines the pervasive links between business conditions on either side of the Irish Sea”, it said.

In the UK, new evidence emerged about the effects Brexit is having on confidence with mortgage lending down and investment in factories cut back.

British banks approved the fewest mortgages for house purchase since March last month and demand to refinance home loans also fell following the Bank of England’s interest rate rise in August, according to industry figures.

The number of mortgages approved for house purchase dropped to a six-month low of 38,505 in September from 39,241 in August, down 6.7% on a year earlier, the figures from UK Finance showed.

The UK’s housing market has slowed since the Brexit vote in June 2016. Most of the weakness has been in London and neighbouring areas, which have also been hit by a rise in purchase taxes for property worth over £1m (€1.13m). Net mortgage lending dropped to £1.55bn last month from over £1.61bn, the weakest since January.

“The mortgage market softened slightly in September, following strong remortgaging activity in the months preceding the recent base rate rise,” UK Finance said.

UK unsecured consumer lending was more stable, rising by an annual 4% in September, but lending to non-financial companies was down by 2% on the year, extending a run of falls seen since April.

“Economic uncertainty continues to impact on businesses’ appetite for finance as overall lending remains slightly below the same period last year,” the industry group said.

The Confederation of British Industry said earlier this week that factories were scaling back investment as uncertainty about the UK’s relationship with the EU remained unclear, little more than five months before Brexit.

Meanwhile, Brexit hit French firms too. Confidence among French manufacturers fell this month to the lowest level in almost two years, a potential sign of weakness heading into the final quarter of the year.

The decline in sentiment came as the French government warned companies to begin preparing for all Brexit scenarios, including no deal between the EU and the UK. At a closed-door meeting at the French finance ministry on Tuesday, Secretary of State Agnes Pannier-Runacher recommended business leaders start identifying measures to limit the impact.

France hopes efforts to reach a deal will be successful but “there’s little time left,” Pannier-Runacher said. “It is, therefore, our collective responsibility to prepare for all eventualities,” she said. The French government is particularly concerned that small businesses are not prepared for Brexit. Around a quarter of France’s 120,000 exporters ship goods to the UK, and customers of British companies could also be impacted. Still, the French government has no estimation of the potential costs to businesses and hasn’t pledged any financial aid for struggling companies, according to the ministry.

In a booklet distributed at Tuesday’s meeting, the government lists examples of measures companies may need to take after assessing their exposure. They include: Contact British and French authorities to get information on how to ensure mobility of employees; diversify suppliers and adapt distribution to take into account new customs procedures; renegotiate contracts with UK suppliers to allow for customs duties; repatriate activities to the EU, depending on sectors; change intellectual property rights to designate the UK as a separate entity; repatriate personal data stocked in Britain; and check where suppliers process or stock data; as well as requesting transfer of financial contracts to entities in the EU.

Additional reporting Reuters and Bloomberg