A third of UK SMEs are resigned to a ‘Hard Brexit’

A third of UK SMEs are resigned to a ‘Hard Brexit’ as confidence drops in the face of a messy, prolonged negotiation.

The reality of Brexit is finally being felt by UK SMEs, although just a fifth (20 per cent) expect Brexit to be achieved by March 2019, according to the latest SME Confidence Tracker from business funder Bibby Financial Services.

Whilst the vast majority (71 per cent) of SMEs are clear that Brexit will happen, more than half (51 per cent) are anticipating a transitional phase before the UK can leave the European Union. These finding fly in the face of Theresa May’s statement at PMQs last week, when she re-iterated that the UK will leave the EU by the end of March 2019 and said Brexit negotiations would not be extended.

SMEs are agreed that Brexit is coming but what it looks like is still up for debate with the business community evenly split: over a third of SMEs (36 per cent) are expecting a soft Brexit, whilst another third (35 per cent) are preparing themselves for a hard Brexit.

Nearly 16 months since the historic decision to leave the EU, the research found:
· Nearly one in ten (eight per cent) think it will be a Soft Brexit and will be achieved by March 2019
· More than one in ten (12 per cent) think it will be a Hard Brexit and will be achieved by March 2019
· More than a quarter (28 per cent) think it will be a Soft Brexit but after a transitional phase
· Nearly a quarter (23 per cent) think it will be a Hard Brexit but after a transitional phase
· Nearly one in ten ( eight per cent) don’t think Brexit will go ahead at all

The research also looks at how businesses have had to cope since the EU referendum result. Over the past 12 months, more than a third of SMEs (34 per cent) cite the increased cost of foreign imports as the biggest impact on their business since the EU referendum vote. A further fifth (22 per cent) cited declining domestic sales.

Commenting on the findings Edward Winterton, UK chief executive officer at Bibby Financial Services, says, ‘Uncertainty isn’t good for business and Brexit is uncertainty in its most acute form. One thing the SME community is certain about is that we are leaving the EU. What is less clear is what Brexit will look like. Despite the Prime Minister’s recent speech in Florence, the country’s small business leaders are evenly split on whether the UK is pulling out of the EU fully, or whether there is still a possibility of remaining in the Customs Union and accessing the Single Market.

‘Since the vote, we have seen a decline in business confidence and we are now starting to see foreign exchange fluctuations making it much more costly to import goods and services. Add to this declining domestic sales, and it reveals how tough it is in the current climate for the ‘backbone of Britain.’

Figures also reveal that a quarter (26 per cent) of SMEs say that an uncertain economic environment in the UK is holding back investment. Other barriers include rising costs (23 per cent); declining sales (22 per cent); building up company’s cash reserves (21 per cent); and uncertainty arising from UK’s exit from the EU (21 per cent).

Additionally, less than half (44 per cent) of SMEs say that the biggest headache they are currently experiencing is winning new customers. Other headaches SMEs are experiencing include finding and keeping good quality staff (41 per cent) and managing cash flow (28 per cent).

Winterton adds, ‘Investment decisions are being delayed, which will have further impacts on the economy. However, our latest findings reveal that although business confidence continues to decline, Britain’s business are still ambitious.

‘The majority (60 per cent) plan to expand their business in the UK over the next 12 months. A little certainty would therefore go a long way right now. The government knows what it needs to do. And the clock is ticking.’