British Chancellor Philip Hammond has said businesses were putting off their UK investments because of uncertainty about Brexit.
"It is absolutely clear businesses where they have discretion over investment, where they can hold off, are doing so - you can understand why. They are waiting for more clarity about what the future relationship with Europe will look like," Hammond told the BBC's Andrew Marr show on Sunday (16 July), ahead of the second round of Brexit negotiations due to take place in Brussels on Monday.
Hammond added that other government ministers were coming around to his stance on the need for transitional arrangements to minimise disruption as the UK leaves the EU.
"Five weeks ago the idea of a transition period was quite a new concept, I think now you would find that pretty much everybody around the cabinet table accepts that there will be some kind of transition.
"We're into a real process now with the start of negotiations and I think you'll find the cabinet rallying around a position that maximises our negotiating leverage and gets the best possible deal for Britain."
He said a transitional arrangement was "right and sensible both for the UK and EU" and could potentially take a "couple of years".
Hammond's remarks follow a Confederation of British Industry (CBI) survey which suggested that 42% of UK firms believe Brexit has hurt their investment plans.
Rain Newton-Smith, chief economist at the CBI, said: "To help British business remain optimistic and keep uncertainty at bay, the government must work quickly to agree the terms of the [Brexit] transition and future trading arrangements. That's why the CBI has suggested staying in the single market and a customs union until a final deal comes into force."
Brexit minister David Davis is due in Brussels on Monday for the next round of talks with EU officials.