The Brexit carnival has Irish business in a spin

There is no greater challenge for business than uncertainty about the future. Uncertainty has been the key characteristic of Brexit since June 2016 and it is still showing few signs of abating.

The reality is that anything is still possible, and for business in the UK and Ireland this is a nightmare scenario and one that seriously militates against business investment and planning. This week BMW warned that a delay to the Brexit process, which does appear to be on balance the most likely outcome, will solve nothing and remove none of the intense uncertainty that currently prevails.

Here in Ireland, some data suggest that the uncertainty surrounding Brexit is starting to become a bit more apparent. The measure of consumer confidence from KBC and the Economic and Social Research Institute fell sharply in February to reach the lowest level since November 2014.

Such a reading obviously has to be treated with caution as a confidence reading is taken at a point in time and may be a reflection of very current events rather than something more fundamental.

Indeed, the unexpectedly large drop in February is being attributed to fears of a no-deal Brexit and the uncertainty created by the nurses’ dispute, which was ongoing when the survey was undertaken.

While it is correct to suggest that too much should not be read into a single reading, it has been clear for some time that the personal sector has been in a less than buoyant frame of mind.

The emerging gap between the value and volume growth of retail sales has been a strong feature of the retail landscape in recent years. In January, the volume of retail sales fell by 1.2% during the month and the value of sales fell by 0.6%. These are weak numbers, but when viewed on a year-on-year basis the story is a little less negative, but is still suggestive of pressures on the personal sector.

In January, the volume of retail sales was 1.2% higher than a year earlier, but the value of sales was just 0.2% higher. These data readings are not exactly indicative of a consumer sector that is on a spending binge or a consumer sector that is in overheated territory.

The lack of wages growth, the very high personal tax burden, unacceptably high housing costs, as well as Brexit are all leaning on the personal sector and it remains a challenging environment for most if not all consumer-facing businesses.

Data from the Society of the Motor Industry show that in the first two months of the year, new car registrations were 12.2% down on the first two months of 2018. And a week into March, used imports were up by more than 5%.

The strong performance of used imports, which is mainly driven by sterling weakness, is undermining new car sales and is indicative of a car-buying public that is searching incessantly for better value for money. There is a common theme out there.

On the labour market front, there was a further decline in unemployment in February, but the pace of decrease is decelerating. There were 135,100 people officially unemployed, which was just 1,600 down on a year earlier.

The AIB Ireland Purchasing Managers Index for the services sector showed that job creation in the services sector slowed to its lowest level in almost a year in February.

The combination of the deceleration of the pace of improvement in unemployment and the slowdown in hiring in the services sector is probably reflecting a combination of Brexit-related uncertainty and a labour market that is approaching full employment, leading to labour shortages and more difficulty recruiting.

All in all, while the Irish economy is still showing solid momentum, there are some reasons for concern and greater caution in the management of the economy.

Of course, it could all look a lot better if the Brexit stalemate ended, but it would be dangerous to bet on that just yet.