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The number of small and medium sized enterprise (SME) owners expecting the economy to improve over the next 12 months plummeted by 30 percentage points as a result of Brexit, the Smith & Williamson Enterprise Index has revealed.

Optimism amongst SMEs of their own prospects over the next year fell by 27%, quarter on quarter, with one in two businesses pessimistic about their prospects.

“Confidence was badly affected by uncertainty in the lead up to the referendum vote but responses submitted after the event indicate that belief in the economy and business prospects fell off a cliff,” said Guy Rigby, head of entrepreneurial services at Smith & Williamson.

Mr Rigby added: “Only a third of respondents were optimistic about their own prospects after the referendum; a decline of nearly 20 points since the last quarter. Furthermore, only 15% of business owners and entrepreneurs expected the economy to improve in the post-referendum landscape, a further decrease of 13%.

“Overall, the results seem to reflect respondents’ concerns in the run up to the vote, together with shock at the unexpected outturn. In due course, and with the benefit of hindsight, this response may be seen as an overreaction. As we are already seeing, there will be some casualties, but change brings opportunity, so there is no reason why the majority of businesses can’t do well."

The Smith & Williamson Enterprise Index, which measures the views and confidence of owner-managers and entrepreneurs in the UK, decreased dramatically over the past three months, falling from 111.4 to 97.7, putting it below its starting level of 100 in 2013. About a quarter of respondents submitted their surveys after the Referendum, accentuating an already negative result.

Delayed expansion

The number of respondents planning for growth or an acquisition declined 14% in the run up to the referendum result, with 60% of respondents believing in the potential for either over the next 12 months. This number declined by a further 11% for those who submitted their views after the referendum. Many respondents have said they have put hiring on hold, while less than half expect to increase headcount over the next quarter, a decline of close to 20% from just three months ago.

“The UK has long been a hotbed for international talent, so it is vital that steps are taken to ensure that this continues. Certainty needs to be given to those migrants who are living, working or intending to provide support to our vital SMEs and Scale-ups. Unfortunately, due to current political instability, such certainty may be a few months, or even further, away," Mr Rigby said.

“It’s a tall order but it’s essential that a workable plan is developed and communicated by both our own politicians and those in the EU. It’s time for the ‘moderate middle’ to step forward to protect both the UK’s and the EU’s interests and it is encouraging to see some clear leadership returning to Government."

Pockets of optimism

Belief in Government support for private enterprise remained steady at 56%, while post-Referendum responses highlighted renewed belief in this support with a three point rise. Respondents’ opinions on the adequacy of the talent pool reached record highs in the quarter with over 51% believing there are sufficiently educated or trained staff available to meet their needs.

Mr Rigby said: “Despite the economic negatives, and the challenging state of affairs, it does appear that many business owners believe there is the potential to bounce back in a positive way. For the first time, the availability of suitably trained talent appears to be on a gentleupward curve and, with measures such as the Apprenticeship Levy being introduced in 2016, this could be set to continue.

"Prior to the referendum there had been a slight upturn in expectations surrounding exports as 61% of businesses believed that turnover would increase. In what may have been a slight 'knee-jerk' reaction to the referendum, this positivity receded as 14% fewer expected any export growth.

"However, the fall in sterling should give a boost to our exports as our goods and service become cheaper overseas."