Posted on Friday 10 May 2019 by Ulster Business

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While Brexit is still upon us, John Simpson says the business sectors' finances have proved stronger than predicted and lending could be boosted on the outside as the veil of uncertainty lifts

The darkest hour comes just before the dawn: an apt reference to the prospects when Brexit is finally taken out of the daily diet of news, concern about business disruption, and foreboding about difficult trading prospects. Brexit is proving to be a slow departure. This year the economy has proved more resilient than many feared. Employment has remained at high levels, jobs for skilled employees are available, and with less certainty personal incomes have been maintained.

Political uncertainty and efficient business management are an uneasy mix. In the recent winter and spring (now heading towards summer) businesses have had to live with an intense series of destabilising influences. For over 40 years, businesses in Ireland and the UK have grown accustomed to near frictionless EU market conditions. customs duties had disappeared on all internal EU trading. For businesses on this island, the memory of cross-border customs duties had all been but forgotten.   

Looking at the lending performances of some of our own banks, the numbers seem to be adding up. In its full year accounts for 2018, Danske Bank posted pre-tax profit of £88.8m, while new lending rose 26% and overall business lending increased by 6%.

Across Donegall Square, Ulster Bank saw its income rising from £184m to £191m during 2018, while profit after impairments stood at £51m. There was a 15% rise in new corporate lending, while small business rose by 27%.

Meanwhile, across the UK as a whole, Barclays has announced a £14bn lending fund as part of a series of initiatives to help small and medium-sized businesses (SMEs) to succeed and flourish through Brexit and beyond.

Only older colleagues (than this writer) can remember the perils of railway journeys interrupted by a one hour stop at Goraghwood station, close to Newry, while all passengers were asked by customs officers if they had ‘anything to declare’. More affluent older travellers would more likely recall the cross-border queuing requirement for the predecessor of the ‘green card’ for cars.

Today, the challenge is of how to deliver the political agreement that the border on this island should be either frictionless or non-existent as the UK plans to leave the EU. In the new era there will be redefined relations between NI and the Republic, within the framework of UK-EU relations. The important part lies in negotiations on working arrangements that have not yet officially started.

For the remaining part of 2019 and going into 2020, the business scene might be described as getting ‘ready for life after Brexit’.

In the last three years the business community which forms the core of the private sector in Northern Ireland has been trading successfully.  The evidence from local reviews of the larger profit making businesses has been encouraging. Year-on-year turnover has been increasing faster than inflation and, even more critically, profitability has been maintained and often improved.

Work to identify how well locally owned and controlled businesses have performed has been reassuring. To be included in the review of the Top 100 more profitable Northern Ireland business, which will be published in more detail, the cut-off point has risen to just on £2m annual pre-tax profits. In a further reassuring feature and in contrast to the preceding year, during the year 2018 the number of business casualties fell to a very small number.

While the overall performance of businesses in the private sector has been better than is sometimes appreciated, there is a mixture of features in the complex matrix of business performance. The evidence is often from personal subjective sources but the elements do point to a consistent pattern.

Businesses have been trading, in general, with improved profits but with turnover rather less buoyant. Employment has been increasing, now more slowly, but pay rates (or average earnings) have not fully recovered from the fall in real earnings in the past decade. Interestingly at a regional and national level, changes in wage rates have not shown the boost of an inflationary increase that might have been expected when unemployment levels have fallen to near record lows.

Bargaining in the labour market has been restrained, probably influenced by the siren voices of emerging problems as the Brexit withdrawal agreement has dominated the political and economic policy agenda. This points to the emergence of a contrast between the trend in overall business profitability, which has improved, alongside the trend for individual personal incomes to lag behind the real levels of the past decade. To a modest degree, business profitability may have improved relative to changes in the costs of the payroll.

While the scale of the difference should be treated with caution, as business evolves during the rest of 2019, business finance may be better placed to activate improving investment plans.

The post-Brexit business scene should be pointing to reduced uncertainty, even with some predictable new business obstacles, and a helpful change in government economic policy to incentivise faster economic expansion. That prospect, alongside a business sector that has a stronger capacity to invest and grow, makes the months ahead more encouraging than many experts expect.

In summary, the business sector is understandably anxious to see a return of greater business stability and, for a mixture of reasons, may now be more likely to implement more ambitious investment programmes. Add to this combination the possibility that official Government economic policy will be more flexible (and less tied to concepts of austerity) and there is a hope that, out of the recent grey clouds of possible recession, there will be incentives leading to a more buoyant economy here.

Just one moment of caution: the brightness of a new dawn in 2019 may be dimmed if the political processes constrain the application of improved economic policies through a refreshed local administration. Business has been performing well, despite the huge levels of uncertainty. However, the political environment could drown out an improving economy. That challenge has not changed.

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