Cash Hoarding: UK Business' Doomsday Defence?
Investment in UK PLC is far less than it should have been as companies sit on their hands and build up the cash they have on their balance sheets. Uncertainty around Brexit and what relationship the UK will have with its biggest export market after March has seen a 27% increase in the amount of cash companies are hoarding to prepare for the worst-case scenario.
UK market analysts Plimsoll, assesses the financial performance of the leading companies in over 1600 key industries that make up the UK economy. Their latest analysis shows that the amount of cash companies retain as a percentage of sales has risen from 14% last year to 18% this. That’s billions of pounds not being invested into capital and jobs to drive extra growth.
Usually, an environment of high profit margins, tight capacity and cheap leading would see investment surge as companies chase growth. Instead, with UK government struggling to develop a clear vision of what Brexit means, companies are storing up cash for a rainy day – even though it may never come.
According to Plimsoll, these are the industries with the biggest increase in cash being stored on companies’ balance sheets:
| Industry |
Cash retained (previous year) |
Cash Retained (Current Year) |
Percentage increase |
| 12% |
25% |
208% |
|
| 25% |
47% |
188% |
|
| 8% |
15% |
188% |
|
| 22% |
41% |
186% |
|
| 28% |
51% |
182% |
|
| 11% |
20% |
182% |
|
| 16% |
29% |
181% |
|
| 10% |
18% |
180% |
|
| 43% |
76% |
177% |
|
| 4% |
7% |
175% |
|
| 15% |
26% |
173% |
|
| 11% |
19% |
173% |
|
| 7% |
12% |
171% |
|
| 6% |
10% |
167% |
|
| 21% |
35% |
167% |
|
| 11% |
18% |
164% |
|
| 8% |
13% |
163% |
|
| 16% |
26% |
163% |
Christopher Evans, Senior Analyst at Plimsoll explains, “The companies we talk to every day have one demand - clarity. Especially those that rely on trade into and out of the EU. Without that clarity, we are seeing UK businesses building a financial buffer to see them through. Sadly, cash hoarding is deferred investment into the UK economy and with it lost GDP growth and sadly new jobs”.
“A soft Brexit with full customs union and single market access would probably see this wave of locked up cash flood into the economy with an immediate lift in investment and a resulting surge in GDP growth”.
“A hard Brexit would see UK companies relying on those cash reserves to see them over a very uncertain period of disruption. How long those reserves will need to last depend on what the actual costs and benefits of leaving the EU turn out to be. If it’s the bright new future of Global trading and new opportunities offered by leading Brexiteers then companies will have plenty of cash to invest and recalibrate their businesses accordingly”.
“If it’s the doomsday scenario feared by Remainers, the cash reserves already squirreled away aren’t going to be anywhere near enough for a great swathe of the UK’s companies”.
