One third of SMEs believe Brexit will have a positive business impact

25 July 2018 Authored by Consultancy.uk

While Brexit remains an unknown quantity, as the March 2019 deadline for negotiations between the UK and Brussels fast approaches, small and mid-sized enterprises (SMEs) in the UK remain broadly positive, despite potential headwinds. While two thirds of SMEs believe Brexit has not affected them positively or negatively yet, a third believe that Brexit will benefit their business in the future.

While the UK Government’s negotiation strategy continues to come under fire, an analysis of over 1,000 SMEs has suggested that small and mid-sized enterprises are still optimistic with regards to Brexit. The quantitative research of OCO Consulting’s Global SME Brexit study, which was undertaken by Opinium between 25th May and 4th June 2018 discovered that 33% believed at the time that Brexit will have a positive impact on their business. The survey also shows that close to a third of SMEs have already felt a positive impact, with 32% reporting improvements in business since the EU referendum.

On the other hand, some 27% of SMEs believe that Brexit will be negative for their business. This is close to the 24% of businesses which say it has had a negative impact on their business, though only 6% said that Brexit’s cons have been ‘very negative’. Positivity also varies significantly based on size of company, with 46% of the smallest SMEs showing positive sentiment, as Brexit may disrupt larger competitors, offering smaller more agile firms opportunities to gain market share, something which sees positivity drop to 30% among the largest companies. Optimism is at its highest in London, with half of all companies polled being positive about the future, which is more than double that of many other UK regions – potentially because, as a top financial hub of the world, London will be best cushioned from Brexit’s impact, as major market forces will still need to access it, regardless of costs.

How has the UK’s decision to leave the European Union affected your business so far?

The broader positivity among SMEs is grounded in a noted up-turn in business since the Brexit vote, as 37% of SMEs attracting new customers and contracts since the Brexit vote, while 36% have managed to increase sales with existing customers. The respondents taken from a representative sample across UK regions, including Northern Ireland, include a majority which are currently exporting or already hosting overseas operations. These groups were also found to be the most bullish regarding Brexit. The deflated pound, which saw its value fall drastically following the infamous 2016 Brexit referendum, has made for competitive prices which have attracted overseas investment, and subsequently led to an export boom, which recently saw the manufacturing sector in particular post its strongest year since 2014, and extend its longest period of expansion in three decades.

As a result, it is unsurprising that within the group of firms which export, 43% have felt a positive impact. The same number expect this to continue post-Brexit – though this optimism is undoubtedly cautious, as according to a recent study from Oliver Wyman, the annual ‘red tape’ costs of Brexit for UK exporters will be around £27 billion even after initial steps to mitigate costs have been taken – before export tariffs potentially come into play in the event of a No Deal scenario. This would be equivalent to 1.5% of GVA, and would likely see prices rise dramatically in order for businesses to ensure their profit margins are not impacted post-Brexit. Regardless of this, exporting SMEs remain optimistic, in contrast with the minority of businesses not currently operating internationally, which see little more than one-in-ten (11%) having felt a positive impact so far, though 15% expect such an impact when looking at the future.

Moving on

Looking ahead, despite the potential of large tariffs on the horizon, of those businesses that already export, just under two-fifths (39%), expect their exports to increase following Brexit, showing that while the UK is set to leave the EU, continued access to the single market will continue to be the backbone to the ambitions of many UK SMEs. Indeed, there has been limited change in the way SMEs consider their future with the EU as an export market, compared to other regions around the world. Over the past five years, 44% of UK SMEs considered expanding into Europe, dwarfing the other regions available, including the US, which was on a distant 19%. While the figure for Europe has fallen by 9% with consideration to the next five years, SMEs in Britain still favour expansion into the closest market over any other.

% of UK SMEs which considered expanding into [region]

The most major change of all in sentiment is that small and mid-sized businesses in the UK seem to have become more focused on their domestic market. Every regional market, even those not impacted by Brexit negotiations, have all seen minor declines in SME sentiment, regarding whether or not they will expand to them. This growing insularity is likely driven by a determination among British SMEs to weather the storm in an uncertain global market by consolidating at home, and then adopting a less insular approach when the dust settles.

Commenting on the findings, Gareth Hagan, Director at OCO Global said, “The UK Government is clearly planning to secure deals around the world and for ‘UK Plc’ to export to new international markets. However, Europe is, and will continue to be the most significant market for SMEs by a long way, and so a deal with the EU, that is good for both exporters and importers and goods and services is of the utmost importance.”

“The challenge of encouraging SMEs to seek opportunities further afield is one that also persists, and ultimately needs to be overcome. Our data shows that historically, consideration of markets outside the EU remains very low in comparison and is likely to decline further post Brexit. We observe something of a ‘fear factor’ amongst both existing and aspiring exporters in many international markets.  Alongside the oft-stated intent to strike free trade agreements, and transform trading volumes outside EU, the Government and industry have an important role to play in developing appropriate channels and support mechanisms that encourage SMEs to consider markets that they may have ignored in the past.”

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