Nearly 60% of SMEs predict UK recession as Brexit bites

Small businesses experience least confident start to a new year since 2014 as they slash investment plans

More than half (57 per cent) of SMEs believe the UK economy will fall into a Brexit recession this year, according to financial services provider Bibby Financial Services.

Confidence among SMEs has declined by 5.6 points year-on-year, with UK businesses experiencing their least confident start to a new year since 2014.

This has had a knock-on effect on investment decisions, with the average amount of capital SMEs plan to invest in their business falling for the fourth consecutive quarter — from £103,648 in Q1 2018 to £64,600 Q1 2019.

One third of businesses are holding back investment due to uncertain economic environment within the UK, increasing from 26 per cent in Q4 2018.

A similar proportion (30 per cent) cite uncertainty arising from the UK’s exit from the EU as holding them back, indicating there has been an impact on UK business investment because of Brexit.

Trouble ahead

Edward Winterton, UK CEO Bibby Financial Services, said:“If SMEs are the warning lights of our economy, this quarter signals to us that they see trouble ahead. We typically observe a seasonal bounce in SME confidence at the start of a year, as businesses begin with renewed optimism. This year, the bounce was lower than ever before, highlighting how Brexit uncertainty is taking its toll on UK SMEs.

“Political uncertainty is acting as a brake on the economy. It needs to end. Regardless of whether you supported leave or remain, Brexit has been an agonisingly slow process resulting in our SMEs pulling back on investment when our economy needs stimulus to grow.”

SMEs are calling for further support from government to help them through Brexit. Over two-thirds (68 per cent) would like the government to introduce tax breaks for businesses, while almost two thirds (65 per cent) want lower business rates, and half (50 per cent) think the government should ensure that tariffs on goods to the EU are avoided.

Winterton added: “There is often talk of protecting the City of London from Brexit, but our SMEs need protection too. I hope the government will act to reduce the impact of Brexit on UK businesses.”

Operationally, SMEs are facing other challenges too, with almost a fifth (19 per cent) seeing rising costs were their biggest challenge. Others believe increased competition from other firms (16 per cent) and late payment (16 per cent) as their biggest threats.