brexit-scrabble

British businesses have faced a period of prolonged uncertainty since the country voted to Brexit well over a year ago, with small and medium-sized companies/enterprises (SMEs), the backbone of the UK economy, arguably feeling the impact the most. However, the fact the UK has achieved GDP growth, despite the turbulent events of the past 12 months, is positive news and shows a degree of economic resilience.: Mark Sismey-Durrant, Chief Executive Officer at Hampshire Trust Bank, looks further.

Impact

The price of imported goods has risen as a result of the weakening of the pound and this has impacted on many smaller businesses. According to the Federation of Master Builders, a third of small building firms say material prices for items such as timber, insulation and bricks have soared since the European Union (EU) Referendum, which has affected SME housebuilders and in turn their customers. This is reinforced by the recent IHS Markit / CIPS UK Construction PMI research, which reveals a slowdown in the commercial construction sector, with respondents citing concerns about the economic outlook as the main reason for the stagnation, stating that some clients are delaying spending decisions.

Furthermore, while we are continuing to see growth across our business savings portfolio, many SMEs are saving less than they were before the Brexit vote. Indeed, our recent UK SME Savings Tracker research found that smaller businesses are saving 20% less than in the run up to the EU Referendum in 2016. The study shows that IT and communications is the only sector to have increased savings balances over this time period, whereas firms in sectors such as in construction and building have seen a 17 per cent drop in their savings balances. According to our findings, concern about the long-term economic outlook was cited as the main reason, by 35 per cent of SMEs, as to why they intend to decrease the amount in savings accounts in the coming year.

From our perspective, the biggest issue is the current uncertainty in the market. In order to encourage business investment and boost business confidence, it is vital that the Government pins down the principles of the Brexit transition. The longer businesses are left in the dark, the greater the impact could be. Clarity around future trade agreements and the free movement of people is vital in enabling businesses to plan and grow, giving them the information they need to adapt business models and anticipate potential labour shortages if necessary.

Growth

Although we appreciate that this is a challenging time for smaller businesses, we are positive about the future. The National Institute of Economic and Social Research estimates that GDP has grown by 0.4 per cent in the three months ending in August 2017 after growth of 0.2 per cent in the three months to July. While growth may be weaker than the levels we are used to, the fact it has picked up slightly is encouraging.

We believe smaller businesses will continue to drive economic growth. Our recent SME Growth Watch research found that despite some short term concerns around uncertainty in the economy, SMEs in the top 10 UK cities are forecast to grow their economic contribution significantly over the longer term, adding £241bn to the UK economy by 2025, a 19 per cent increase on the £202bn contributed in 2016.

We believe our report demonstrates the critical importance of SMEs as the engine room of the UK economy and should boost confidence among business leaders across the country. This is a challenging time for British businesses, however, SMEs need to carry on investing and innovating to support growth. It’s for the Government to create the conditions in which they can prosper.