Businesses warn Corbyn is making investors nervous

Businesses have warned that Jeremy Corbyn’s rhetoric at the Labour Party conference is scaring investors and that neither of the two main parties in the UK currently inspire confidence.

Corbyn yesterday told the party conference in Brighton that Labour would nationalise the utilities sector, make big businesses pay more tax and crack down on developers holding on to land.

But business groups says this will send investors running from the UK.

British Chambers of Commerce director general Adam Marshall says Corbyn did little to reassure companies already worried about widespread state intervention, nationalisation and increases in taxes and costs. “Investors, both here at home and across the world, are also taking note.”

However, Marshall has little extra praise for the Conservatives.

“There is a rising concern amongst businesses about the two largest parties in Westminster, with one flirting with fantasy economics while the other engages in an unedifying playground bust-up.”

CBI Director-General Carolyn Fairbairn echoes Marshall’s comments about Corbyn.

“Repeated rhetoric on the sins of a handful of businesses does little to reassure anxious entrepreneurs and investors about the UK’s future as a great place to do business.”

She says where Labour has sought insight from business, such as on its policy for Brexit and investment in infrastructure, she has seen “sensible proposals that support jobs and living standards”.

“But where engagement has been lacking, from nationalisation to business taxes, future investment, jobs and growth are being put at risk,” Fairbairn says.

The prospect of a Jeremy Corbyn-led government has increased since Theresa May’s election gamble backfired in June and delivered a hung parliament.

Net outflows from UK equity funds totalled £1.1bn in election month, according to Investment Association figures and fund managers have warned that Corbyn is adding to their concerns on the UK when they are already worried about Brexit.

Currency contingency

Earlier this week, Corbyn said it was possible that a Labour-led government would cause a run on the pound and that the party had been examining what it would do in that scenario.

7IM CIO Chris Darbyshire says they have been planning for extreme currency movements on the back of Brexit and has bought call options on the sterling/US dollar exchange rate to protect against “unknown unknowns”.

These helped our portfolios when the Pound surged recently on the back of the Bank of England’s discussions about raising the base rate,” Darbyshire says.

Under the firm’s two most likely scenarios sterling would settle at $1.40.

In the first scenario, little progress is made in negotiations and political pressure for a change of strategy builds as crumbling business and consumer confidence crumbles leading to lower expectations for UK growth and corporate profits. In this case the Government “kicks the can down the road” and focus shifts from a Free Trade Agreement to a transition phase.

In the second scenario, sterling undergoes a rollercoaster ride and initial attempts to implement a hard Brexit are confounded by economic distress, leading to a European Economic Area-lite deal.