Small firms delay long-term plans over EU doubts
All the news and analysis for ambitious company owners
FOUR-IN-TEN small to mediumsized enterprises in the UK have stalled their long-term planning due to the lack of clarity surrounding Brexit negotiations.
The latest Business Barometer survey from merchant bank Close Brothers revealed the delays affected investment plans (8 per cent of respondents), hiring plans (7 per cent), plans for growth (11 per cent), financing plans (11 per cent) and export/import agreements (3 per cent).
It comes as the Federation of Small Businesses has revealed that 32 per cent of smaller firms are involved in overseas trade, as an exporter, importer or both. Ninety-two per cent of those that export and 85 per cent of those that import currently trade with the EU single market.
Adrian Sainsbury, managing director of Close Brothers’ banking division, said: ‘The ongoing negotiations over the terms under which the UK leaves the EU have had a perceptible impact on SMEs’ business and funding plans. Despite the uncertainty, it is encouraging to see that larger SMEs have not stood still but have sought financial advice.’
As a result of Brexit, 29 per cent of UK exporting small firms expect their export volumes to fall. Only 20 per cent expect volumes to rise. The research is based on three surveys of UK small businesses, with more than 4,000 responses in total.
The Business Barometer revealed that the most important factor for SMEs in the Chancellor’s next Budget is clarity about Brexit negotiations, with 24 per cent stating this as their top priority, above red tape (18 per cent), corporation tax (15 per cent) and further investment for skills and training (15 per cent).
Close Brothers’ report, Banking On Growth: Closing The SME Funding Gap, has also revealed that the UK’s decision to leave the EU has resulted in 43 per cent of larger SMEs – each with 100-249 employees – changing their funding plans. This compared with just 15 per cent of micro SMEs – with up to nine staff. Close Brothers suggested this demonstrates how the UK’s larger SMEs are more affected by the Brexit vote than smaller ones.
However the latest estimate of UK GDP growth confirms that the UK economy enjoyed a strong end to the year, according to Suren Thiru, head of economics at the British Chambers of Commerce, following GDP figures for the fourth quarter of 2016, released on Thursday by the Office for National Statistics.
‘While there was a welcome pickup in output from manufacturing and construction, the UK remains heavily reliant on services and consumer spending as the main drivers of growth,’ he said. ‘The yearly figure of 2 per cent UK GDP growth is broadly in line with historic trends.
‘However, outperforming last year’s performance in 2017 will be a challenge for the UK economy. Higher inflation and uncertainty over the implications of Brexit are expected to bear down on the UK’s near-term growth prospects. This is likely to squeeze consumer spending and dampen firms’ investment intentions, resulting in a prolonged period of below-trend growth.’
Chris Manson, chief executive of business consultancy and loan provider Newable, said: ‘The investment horizons of SMEs tend to be much shorter than those of big companies, and big firms seem to dominate discussions over what the relationship with Europe will be.
‘A car maker, for example, might have a seven-to-ten-year horizon. The type of businesses we deal with are more focused on the six or 12month horizon. Exchange rate fluctuations have been much more significant in the short term.
‘Politicians and the media tend to see exchange rate fluctuations as one-directional. But most people who export also import, so it’s not all a win. We tend to import, add value and then export again. It’s not necessarily just exporting. The uncertainty around the exchange rate is difficult for businesses.’
On Wednesday, small business support group Enterprise Nation announced its 2017 Go Global missions programme, aimed at helping Britain’s smallest firms to export. The missions will offer small companies the chance to explore sectorspecific, subsidised trading opportunities in Beijing, the US, Singapore and Dubai, kicking off in March with a food and drink expedition to Paris.
Caroline Jackson, who founded small bra specialist Little Women and went on an Enterprise Nation trade mission to Hong Kong in November, said: ‘I met a manufacturer in Hong Kong that I’m in talks with to launch a brand new range this year. I’ve decided to focus my exporting efforts on Asia and the US through multi-channel marketplaces like Amazon and eBay.’