Brexit uncertainty returns to leave SMEs in economic limbo

Blog

By Bibby Financial Services

18 Jul 2018

In our first SME Confidence Tracker report of the year, I remarked that notable progress between the Government and the EU throughout March had resulted in rebounding confidence amongst the UK’s small and medium sized businesses. I concluded that a little Brexit progress could go a long way in terms of SME confidence. 

Less than three months later, the Government’s plans are in disarray following the resignation of Brexit Secretary, David Davis and Foreign Secretary, Boris Johnson. While quickly replaced by respective successors, Dominic Raab and Jeremy Hunt, changes yet again leave Theresa May’s tenure as Prime Minister on shaky ground. 

With repeated calls for Article 50 to be extended to enable tangible progress to be made in negotiations between Brussels and the UK government, the future of Brexit is now more uncertain than ever. This will undoubtedly impact SME sentiment over the summer months.

Prior to July’s Cabinet changes, however, SMEs had already indicated their frustration over a lack of further progress on Brexit, following a seemingly positive start to the year. Our Q2 2018 Tracker data reveals confidence yet again tumbling between April and July as one-fifth of SMEs reflected that Brexit uncertainty was holding-back investment and stifling growth plans.

The proportion of businesses not planning to invest over the coming months has jumped by 10 per cent from over a quarter in Q1 (28%) to almost two-fifths (38%). Average planned investment has dropped significantly with SMEs planning to invest £85,797 between June and September, down from £103,648 planned for Q2. Sales expectations for Q3 have also taken a hit. More than one in ten businesses (12%) now expect sales to decline in the next three months, up from 7 per cent in the first quarter of the year.

So what does this all mean? When combined, findings reflect an uncertain and cautious SME environment that not even the World Cup can solve.

Rather, businesses need answers to their questions over the future of the UK’s relationship with the EU. Specifically, they want clarity around the Customs Union, access to the Single Market and further detail on the practicalities of implementing this historic change. 

But while Brexit continues to dominate the national business-psyche, there has been some progress in the Government’s Industrial Strategy. 

Our latest Tracker data shows growing awareness and perception of the Government’s flagship Northern Powerhouse and Midlands Engine initiatives. However, while awareness of both has increased, there is still more work to be done – particularly in relation to the Midlands Engine – in helping SMEs to understand the opportunities available to them through such regional initiatives. 

Whether the Government’s Industrial Strategy yet again takes a back-seat as Theresa May looks to install calm in the Cabinet remains to be seen. For now at least, SMEs continue to voice their collective frustration that more than two years on from the UK’s historic vote, we are no closer to answers on key issues, forcing them to remain in economic limbo once again. 

 


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