Is Brexit the dead weight on our otherwise robust economy?

Lengthy EU exit is impacting confidence among UK SMEs

Blog

By Edward Winterton, Chief Executive Officer, UK

26 Apr 2019

by Edward Winterton, UK Chief Executive, Bibby Financial Services

At the end of 2018, I discussed how the UK economy remained robust, despite the challenges of Brexit. Recent economic signals indicate that little has changed in 2019, even though growth is noticeably sluggish. Employment continues to beat previous records and wages are experiencing the fastest growth rate in a decade, but the Brexit process has continued to dampen confidence. Our SME Confidence Index shows that while confidence has increased slightly in Q1 to 59.10 from 58.03, this seasonal upward trend is the weakest we’ve seen since 2014.

SMEs are signalling trouble ahead for the economy. Most worryingly, over half (57%) believe that the UK is likely to enter a recession this year. In fact, our quarterly findings suggest Brexit is a likely driver of this sentiment as over two in five (41%) of those surveyed believe Brexit will have a negative impact on their business.

SMEs are also facing operational difficulties, with almost one in five (19%) citing rising costs as their biggest challenge which perhaps reflects the tougher trading conditions a weaker pound has had on the cost of raw materials. Separately, others believed increased competition from firms (16%) and late payment (16%) were their biggest challenges.

Collectively, these challenges are limiting the investment plans of SMEs which could have long term implications. The average amount SMEs plan to invest fell for the fourth consecutive quarter – from £68,967 in Q4 2018 to £64,600 in Q1 2019.

This is especially worrying for those that believe investing is key for growth. While the number of SMEs choosing to invest remains firm at 71 per cent, the spending power of SMEs has been in decline since Q1 2018, with a drop of £39,048 in investment.

Regardless of the economic challenges, our SMEs should not be pulling back on spend when it can help them through these uncertain times. In Q4, I said that I hoped the Brexit issue would be less of a burden for SMEs in 2019, but that was wishful thinking. The reality is that the Parliamentary process has unfairly dominated our national conversation and it is imperative we get a resolution soon. Whatever the outcome, the UK is, and will continue to be, a good place to do business, but it will be even better when the Brexit related fog finally lifts.

Our research shows a clear need for support from the Government to help SMEs compete and thrive in these testing times. Over two-thirds (68%) of SMEs are calling for tax breaks, almost two-thirds (65%) want lower business rates, and half (50%) want assurance that tariffs on goods to the EU will be avoided. Collectively, the desire for this support shows that there’s a real opportunity for the Government to throw its weight behind SMEs and act.

We can hope for more certainty, but we must all accept that our exit from the EU is the start of a new chapter. The UK’s priority will be about defining a new role for itself, both in Europe and further afield, and recalibrating its trading relationships to replace those changed to accommodate Brexit.


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