January 31, 2019 / 12:46 PM / 19 days ago

British car industry warns against no-deal Brexit as investment slumps

LONDON (Reuters) - Investment in the British car industry halved last year due largely to uncertainty about future trade with the EU and surveys showed consumers and businesses were more anxious about the economic outlook as Britain heads towards a no-deal Brexit.

The Society of Motor Manufacturers and Traders said on Thursday that investment in Britain’s automotive sector was 589 million pounds last year, nearly 50 percent less than in 2017 and the lowest since the 2008 financial crisis.

“Investment has effectively stalled,” said SMMT Chief Executive Mike Hawes, who called on the government to avoid “the permanent devastation” of a no-deal exit by Britain from the European Union.

“A lot of that is on hold because until you see what the future is, do you have the confidence to invest in that plant when there is that sort of uncertainty?”

Production also fell, by 9 percent.

The SMMT said it expected car production to fall another 3 percent in 2019, assuming an orderly Brexit with a transition period to minimise economic disruption.

Some 850,000 Britons are employed in the car industry.

Britain is due to leave the EU, the world’s biggest trading bloc, on March 29. Its lawmakers have rejected the withdrawal agreement Prime Minister Theresa May negotiated with Brussels, leaving the country on course for an abrupt exit that could cause major disruptions to trade.

As May headed back to Brussels on Thursday to demand changes to her divorce deal, leading EU lawmaker Danuta Hubner warned that the risk of a no-deal Brexit had grown.

Hubner told Reuters the bloc could offer Britain more assurances over the “backstop” aimed at preventing a hard border in Ireland in a political declaration on post-Brexit ties if London moves towards staying in a customs union with the EU.

May wants to replace the emergency Irish border fix with unspecified “alternative arrangements”, something the EU says is vague and not enough of a guarantee.

“If there is no openness on the UK side to include those assurances in the political declaration on the future EU-UK ties, the process could mechanically take us to no-deal,” Hubner said.

CONSUMER GLOOM

Other data on Thursday showed confidence among British consumers held at a 5-1/2 year low in January. Increasing gloom about the outlook for the next 12 months was offset by a small improvement in personal finances, the GfK index showed.

Surveys of businesses by the Confederation of British Industry and Lloyds Bank also gave a sobering outlook for the world’s fifth-largest economy.

House prices, a key barometer of consumer confidence in Britain, rose by just 0.1 percent in annual terms in January, their weakest rise in nearly six years.

Britain’s housing market has slowed since the Brexit referendum in June 2016 when Nationwide estimated house prices were rising by around 5 percent a year.

But warnings by former finance minister George Osborne that a “Leave” vote would hit the value of people’s homes by up to 18 percent have not materialised.

That has led many advocates of Brexit to dismiss as a continued “Project Fear” current warnings that a no-deal scenario could cause severe disruptions to food and medical supplies, transportation and manufacturing.

FILE PHOTO: Cars are displayed outside a showroom in west London October 4, 2013. .REUTERS/Luke MacGregor

But the SMMT’s Hawes pinned the fall in automotive industry investment firmly on the uncertainties surrounding Brexit.

“I think the numbers give the lie to that accusation: investment figures, production figures,” said Hawes.

“If it’s ‘Project Fear’, then we’re doing a good impression of it being a reality.”

Additional reporting by David Milliken and William Schomberg; Editing by Guy Faulconbridge and Catherine Evans

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