Uncertainty surrounding Brexit has driven expectations among executives for new merger and acquisition (M&A) deals in the UK to a four-year low, according to a poll by advisory services firm EY.
Only 45 percent of executives expect to actively pursue acquisitions in the next 12 months, a drop of 20 percentage points since July, according to an EY survey that took in 156 firms in the UK.
The research for EY’s capital confidence barometer is part of a wider poll of 2,600 senior executives from 45 countries, the consultancy said in comments released yesterday.
Confidence in the British economy slipped 5 percentage points to 63 percent, although 86 percent of British respondents said the global economy was improving, EY said.
“Lower domestic growth, combined with rising UK wage costs, Brexit-related disruption and the impact of a weaker pound on import prices are all front of mind for UK business leaders,” EY’s managing partner for transaction advisory services Steve Ivermee said. “Longer term, the need to get ahead of technological disruption and seek growth from new markets is likely to sustain M&A activity.”
The gloomy outlook comes after US companies more than doubled the amount they have agreed to spend on UK targets this year compared with the same period a year earlier, according to data compiled by Bloomberg.
The US acquirers are not as concerned about Brexit as their European counterparts, and the decline in the value of sterling since 2014 has made UK assets attractive, according to a report in September by consulting and accountancy firm Moore Stephens International Ltd.
Meanwhile, the pound’s jump at the start of this month gave investors a hint of what might happen if there is a Brexit deal in coming weeks.
Sterling could “blast through” US$1.35 within two days if a divorce is agreed between Britain and the EU, Mizuho Bank Ltd said.
The pound yesterday gained as much as 0.7 percent following a Sunday Times report that British Prime Minister Theresa May had secured concessions from Brussels to let her keep all of Britain in a customs union with the EU.
The chances of getting a deal appear to be improving, although the Irish border is still a big outstanding issue.
The Financial Times late last week said that a new proposal from the European side is on the table and British Secretary of State for Exiting the EU Dominic Raab visited the Irish border on Friday.
Raab also raised the prospect of a deal by Nov. 21 in a letter to lawmakers.
If parliament approves any agreement, sterling could appreciate to US$1.40, Mizuho’s head of hedge-fund sales Neil Jones said.
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