Blog

By Edward Winterton, Chief Executive Officer, UK

29 Oct 2019

Our latest global research indicates that UK businesses continue to be impacted by global uncertainty, as well as more home-grown issues such as stubbornly low productivity.

Our latest global research indicates that UK businesses continue to be impacted by global uncertainty, as well as more home-grown issues such as stubbornly low productivity. 2019 has been further affected by the introduction of a cyclical form of stockpiling to deal with shifting Brexit dates. Spending spikes translated into sharp dips as companies were forced to run down materials held in reserve ahead of a predicted withdrawal from the EU and concerns about supply chains.

The manufacturing sector has been dealt a double blow as a global slump rippled through the UK market. Long-term trends indicate that the sector is trending towards a contraction and it will be SMEs along the construction supply chain that are put under the most strain. Whilst larger companies can afford to weather periods of low demand, SMEs simply do not have the capital reserves to do so. With low interest rates the norm for a decade, rates cannot remain at their current levels forever, and there are far cheaper finance options available to the market. With competition increasing, companies fuelled by credit card debt may soon feel the pressure.

The research indicates a long-term rise in the number of SMEs seeking external finance. Ordinarily a rise in the number of companies investing in themselves would be a good thing, however the research indicates that with increasing competition, rising materials costs as a result of a weakened pound and the broader economy stalling, investments are being used to smooth cashflow rather than for growth.

It’s striking that despite 30 per cent of UK GDP reliant on exports, analysis from Berenberg Economic puts the level of business investment 13 per cent lower than it would have been had it followed the pre-referendum trend line.

The next 12 months will be critical for the UK economy and its long-term strength. For SMEs, the challenges will require careful navigation to ensure emerging opportunities can be seized.


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