With Brexit Uncertainty Looming, UK Businesses and Employees Lose Confidence in Economy

With Brexit Uncertainty Looming, UK Businesses and Employees Lose Confidence in Economy

The deadline for the UK to withdraw from the European Union is coming up in just two weeks, on March 29. This week, the UK Parliament voted against a deal negotiated between Prime Minister Theresa May’s government and EU leaders, against a no-deal Brexit, and in favor of delaying the Brexit date in order to buy additional time to figure out a solution. Any delay will require the consent of the 27 remaining EU countries, which is not guaranteed, and even with more time, legislators will still face the same tough choices.

As the clock counts down to the deadline, Brexit has created a lot of uncertainty for UK organizations and their employees, especially workers from other EU countries whose future status is up in the air. This uncertainty has done significant damage to UK employees’ confidence in the business environment, Gartner’s latest Global Talent Monitor report indicates:

Employee confidence in the UK business environment has slumped, according to Gartner, Inc. The latest data in Gartner’s Global Talent Monitor report for 4Q18 shows employee confidence in near-term business conditions and long-term economic prospects reaching an index score of 55.6, a decline of 7.5 per cent from an index score of 60.09 in 3Q18. These results follow a worldwide trend that has seen global business confidence sink to its lowest point since the fourth quarter of 2017.

This lapse in confidence was paired with a sharp decline in employees’ active job seeking behavior, which fell by 7.2 per cent from 3Q18. Amid declining perceptions of the job market, coupled with the highly uncertain Brexit outlook, employees’ intent to stay in their current jobs in 4Q18 increased for the first time in 2018, as did their willingness to go above and beyond in their present roles.

UK employers are staring down the uncertainty of Brexit in the context of a tight talent market in which it has become exceptionally challenging to fill critical skills gaps. The Global Talent Monitor data from the final quarter of last year suggests that talent attraction will be a major challenge for employers this year, regardless of what happens with Brexit, as employees take a more pessimistic view of the job market and become more averse to the risks inherent in changing jobs. (Gartner for HR Leaders clients can see all the latest data from our Global Talent Monitor here.)

Uncertainty is a key factor — perhaps the key factor — driving the Brexit panic, as illustrated by the Decision Maker Panel, a survey of 7,500 UK business executives that researchers from the Bank of England, University of Nottingham, and Stanford University have been running regularly to gauge the impact of Brexit on companies. Writing at the Harvard Business Review, the researchers ascribe declines in investment, employment, and productivity to Brexit-related uncertainty:

We find that Brexit has been an important source of uncertainty for many UK businesses. We estimate that this led to a 6% reduction in investment in the first two years after the referendum, with employment also around 1.5% lower. And Brexit is likely to reduce future UK productivity by around half a percentage point via a batting average effect of output being reallocated away from higher productivity firms toward lower productivity ones. The majority of businesses anticipate that Brexit will eventually reduce sales and increase costs. …

In August 2016, in response to the question: “How much has the result of the EU-referendum impacted the level of uncertainty affecting your business?” 36% of CEOs and CFOs cited Brexit as at least one of the top three current sources of uncertainty. At the time, 9% said that Brexit was the most important factor and 27% said it was one of the top two or three sources of uncertainty but not the top source.

Successive waves of this question have shown that firms continue to place Brexit high on the list of sources of uncertainty. Results since summer 2018 indicate an increase in uncertainty arising from Brexit. The share of firms responding that Brexit was one of their top three drivers of uncertainty rose from 36% in August 2016 to 54% in the period between November 2018 and January 2019, with the proportion who thought that Brexit was their top current source of uncertainty increasing from 9% to 23%.

Like any significant disruption in the business environment, the Brexit process also stands to affect employee behavior in other ways, as Gartner HR group vice president Brian Kropp pointed out in a post at Personnel Today last week:

In fact, according to historical analysis from Gartner, two key trends are likely to occur in the face of business disruption:

  • Employee engagement will decline with high-potential employees quitting.
  • Employees’ behaviour is likely to become more erratic and problematic, with more instances of lying, cheating and theft.

One of the clearest reasons why a drop in employee engagement occurs during times of disruption is that workers become more risk-averse. Although executives want to believe that during periods of disruption their employees will “lean in” and help the business push through, the reality is that employees “lean out,” becoming more cagey about their business environment. …

While executives are occupied by the need to mitigate external pressures, the engagement levels of these high-value employees never recover. Under more pressure – yet without increased compensation or assurances of job security – one in four high potentials will leave their employer during periods of major disruption.

Other studies published this week also underline the impact of Brexit uncertainty on local perceptions of the UK’s economic trajectory. Several surveys gauging UK employers’ hiring plans for the coming months are showing negative trends, People Management reported earlier this week:

ManpowerGroup’s latest Employment Outlook Survey found the business and financial services sector – which employs nearly a fifth of all UK workers – was most likely to be hardest hit by layoffs projected to happen in the last three months of this year. An estimated six million people, including lawyers, bankers, architects and estate agents, work in this sector. …

Separate analysis by global information provider IHS Markit found 14 per cent of UK private sector firms expected to boost their staffing levels in February, down from 15 per cent in October 2018 and the lowest reading for six years. … Associate director at IHS Markit, Tim Moore, said the results were unsurprising. “With uncertainty in relation to Brexit outcomes a persistent feature of the political landscape so far in 2019, it’s of little surprise that February’s UK business outlook survey makes for grim reading,” he said.

Another study, commissioned by Right Management and highlighted at Personnel Today, underscores employees’ low expectations for their career progress and compensation this year:

According to the study, Brexit: Age of Uncertainty, 33% of employees expect a freeze in pay or promotions after the UK leaves the EU, and 54% say Brexit will put extra pressure on the workforce. Furthermore, only 38% of respondents are confident their organisation will survive Brexit, and just 21% say their company is ready to make it a success. Importantly, 45% say a no-deal Brexit will have an adverse impact on their company.

One quarter of workers (26%) say Brexit is a taboo topic to discuss with management while half (53%) believe they should have a say in their company’s stance towards Brexit. And 42% of UK workers want more clarity on how Brexit will impact their role.

Workplace Insight flagged yet another study from Personal Group, which found that more than 34 percent) of UK residents expect Brexit to have a negative impact on their current employment, an increase of nearly 4 percent from 2018. Contingent workers are particularly concerned:

While some direct employees have become a little more positive regarding Brexit’s effect on their employment (+0.53 percent), contactors and those who are self-employed feel much more negative about it this year than back in 2018. When asked ‘How do you think Brexit will affect your current employment?’ the results captured just last month showed an increase of more than 50 percent amongst contractors expecting a negative impact than in 2018, and a 33 percent increase in those who are self-employed expecting a negative impact.

Employees’ confidence certainly won’t be helped by fears that Brexit could mean a step backwards in their rights. While May has promised that UK workers will not lose any of their rights, which in some cases exceed those required by the EU, unions and workers’ rights activists have questioned the sincerity of those promises. This week, a legal opinion solicited by two major British trade unions described them as “meaningless,” Personnel Today reported:

[Aidan O’Neill QC] writes: “I am asked to advise on whether the latest UK government proposals on the continued protection of workers’/employment rights after Brexit will be effective and sufficient, as a matter of law, to ensure not only that the current level of protection afforded to workers’/employment rights as a matter of EU law will be maintained but that any post-Brexit improvements in those rights as a matter of EU law will be matched once the UK leaves the EU.

“The short and unequivocal answer to that question is, perhaps unsurprisingly, ‘no’.” The opinion says that May’s proposal is no guarantee that future EU standards will be matched adding that, because Parliament cannot bind future Parliaments, any such guarantee would be “meaningless”.