Over a quarter of UK businesses think their cash reserves will grow next year as they put off investment decisions as a result of Brexit uncertainty according to new research.
Nearly two thirds of those surveyed have a cash surplus this year, the same for the last four years, while 64 per cent believe they will have a cash surplus next year too. 28 per cent thought the surplus for 2018 would be even higher.
According to the ONS, as of Q1 2017, UK non-financial companies held £655bn of currency and bank deposits, up from £587bn.
The survey reflects the continuing fall in business investment that UK plc has seen over the past few years. The single factor which would have the most impact in encouraging businesses to use surplus cash was more clarity on Brexit outcomes. However Government can also foster the right conditions that would encourage companies to invest by offering tax incentives and reliefs as well as relaxing planning policies.
Furthermore, 61 per cent of businesses continue to have a cash surplus this year, and a similar proportion expect it to have it next year as well. The size of this surplus is also increasing.
The research also discovered that 37 per cent are neither considering investing or starting to invest their cash surplus in the next 12 months– the main reasons being a need for flexibility, too much uncertainty and no opportunity for investment.
Of those who have already used their reserve or thinking of using it, many are investing back into their IT infrastructure, training and staff development, and new technology.
Among those with a cash surplus, confidence in the business environment is needed to encourage a major investment – with many citing more clarity on Brexit outcomes, increased confidence in the UK and global economy, as well as more consumer confidence.
Michael Izza, ICAEW Chief Executive, said “Businesses are in no rush to make major capital investments at the moment and this is reflected in the amount of cash they are hoarding. But businesses should be investing now for the future and not for austerity. Without this investment, growth will continue to slow, especially as we can no longer rely on consumers to keep spending at the rate they were.
“It is now up to businesses to support more growth. They need to look for opportunities in overseas markets, make efficiency savings and invest in innovation, talent, new products and services to create a longer term return – and this involves spending some of the mountain of cash they are sitting on.”