London Landscape

What will Brexit mean for your business?

Brexit will present a wide range of challenges and opportunities for British businesses.

The landscape will inevitably change as trade negotiations progress. So what does the business landscape look like now; what are the issues and risks, and how can you overcome them?

Bullish about Brexit

Our Trade Barometer survey of businesses provides a quarterly picture of the economy as a whole.

Overall, we found that 43% of businesses expect Brexit to have a negative impact, down from 66% in our 2017 report.

This chart shows where UK companies are focusing their growth – both now and in the next year.

But views on both the economy and Brexit vary significantly by region and sector.

Santander Trade Barometer

Source: Santander Trade Barometer Spring 2018 update

UK company expansion plans (%) - current
86
HIRING NEW STAFF
92
78
PRODUCT DEVELOPMENT
73
72
PURCHASING NEW EQUIPMENT
88
56
UK EXPANSION
76
UK company expansion plans (%) - next 12 months

Are you Brexit ready?

Not sure where to start? There are a number of practical steps businesses can take right now.

Our short video has some top tips to help you prepare.

Brexit Callout

What does Brexit mean for your sector?

Manufacturing

Manufacturing is a stoic sector that gets on with the job in hand. But is this a time to be rolling up sleeves, or should the sector be looking more closely at what the future holds?

Our Trade Barometer shows that less than half of manufacturing businesses have put plans in place or made preparations to address the impact of leaving the EU. While this is low compared to other sectors, manufacturers have a more watchful eye on issues such as the rise of protectionism in overseas markets, currency volatility and the threat of interest rate rises.

Some 71% of manufacturing companies trade internationally, and uncertainty around Brexit is still causing some concern according to our statistics:

  • 43% of manufacturing companies report that Brexit will have a negative effect on their business.

Terry Scuoler, Santander’s Manufacturing Sector Advisor, issues a word of warning but highlights the opportunities that exist for pro-active businesses:

With the likely agreement of a 21-month transition period delaying Britain’s departure until the end of 2020 there is a risk that companies will lose the sense of urgency needed to adapt to a changing trading environment.

My message therefore to companies is, as ever, that competitiveness is key. Continued investment in modern plant and equipment, improved process flow and up skilling at all levels is vital if companies are to prosper and ultimately for the UK to win the global race.

Santander’s view:

In the post-Brexit world, manufacturing will increasingly provide Britain’s link to the world, currently generating 44% of total UK exports. The sector is also vital for the nation’s future source of income, undertaking some 70% of total R&D by Britain’s businesses.

Data around employment is equally impressive, with 2.6 million people working within the manufacturing sector across the country.

Sources: Santander Trade Barometer Spring 2018 update - EEF and Santander UK Manufacturing 2017/18, The Facts, September 2017 - EEF and Santander Investment Monitor 2017/18, 2017

Food and drink

The food and drink sector has grown steadily over the past few years, but will the uncertainty around Brexit challenge its resilience?

The possible imposition of tariffs if the UK leaves the Customs Union – as well as other non-tariff barriers – could impact the export competitiveness of business and raise input costs. There will be supply-side issues facing the sector, which could impact export demand, alongside the risk of currency fluctuations.

Statistically Brexit is a big deal for the sector.

  • 60% of trade in food and non-alcoholic drinks is with the EU.
  • In 2017, EU exports accounted for 61% of total exports
  • 70% of F&D imports are sourced from the EU

More than 95% of regulation is in the form of EU legislation, and leaving the EU could create opportunities where current regulations are onerous or restrictive. But if businesses fail to recognise different regulatory systems there could be risks not only to competitiveness, but also public health and consumer confidence.

Similarly, with 120,000 non-UK EU workers in the sector, continued access to labour – and making the UK attractive to labour – will be crucial for many businesses.

Andrew Williams, Head of Food and Drink, says,

2017 saw a record year for UK Food and Drink exports, with many businesses capitalising on the favourable export conditions due to sterling depreciation since the Referendum and increasing demand for high quality UK products. Food and Drink businesses should be building on this experience to include exports as a part of their long-term growth strategy.

Santander’s view:

Uncertainty surrounding the Brexit negotiations has impacted some firms’ investment decisions. Despite this, 51.5% of businesses tell us that they are either increasing investment due to Brexit opportunities or that Brexit has had no impact on their investment plans.

Food and drink exports reached record levels in 2017, with £22bn of exports to 217 markets. While cultural similarities in the EU offer advantages, we are seeing strong demand from further afield than the EU including India and the Middle East.

Sources: Santander Trade Barometer Spring 2018 update - Food and Drink Federation, UK food and drink export statistics 2017

Transport and logistics

Transport and logistics is a wide-ranging sector and certain firms will be affected to a much greater degree by Brexit – specifically Britain’s exit from the Customs Union. Starting some form of long-term planning is crucial.

Our Trade Barometer survey suggests that less than half (46%) of transport and logistics businesses have started planning for the post-Brexit future. This is broadly in line with the rest of the economy.

Let’s look at those that have started planning.

  • 70% have started scenario planning for the potential Brexit outcomes.
  • 56% have started investing in solutions to deal with possible disruption.
  • 56% are looking at the legal implications of relocating staff from the UK.

We asked Santander UK’s Head of Transport and Logistics, John Simkins what opportunities Brexit could deliver:

The majority of British goods exported into Europe go across the Channel. Brexit could be the opportunity to consider alternative supply chain routes such as rail or alternative shipping routes.

Similarly businesses could look at World Customs Organisation accreditation as an Authorised Economic Operator, and therefore have the potential to get a much easier journey through customs.

Santander’s view:

More than three-quarters of the UK’s transport and logistics businesses are confident they will grow over the next three years – a greater proportion than in any other sector of the British economy. Brexit has led to a falling sterling, which has led to cheaper exports. UK transport and logistics businesses can capitalise on the increases in exports from other businesses.

Sources: Santander Trade Barometer Spring 2018 update - Quarterly Transport Activity Survey, October 2017 

Retail and wholesale

Almost half of retail and wholesale businesses in the UK will be affected by Brexit.

It’s a sector at the end of the economic value chain so, in the face of so many unknowns, how tough will Brexit be?

Just 32% of retailers and wholesalers have made plans for the UK’s departure from the European Union. That’s fewer than in any other sector except mining in Santander’s Trade Barometer. This is despite potential changes including the duality of UK and EU regulations for products, protection filing requirements for brands, and consumer regulation. Let’s look at some figures.

  • 59% of retail and wholesale businesses already sell goods or services outside of the UK.
  • 55% of businesses plan to expand their overseas sales over the next 12 months.
  • 51% of businesses in the sector are concerned a slowdown in the UK economy could negatively impact them over the year ahead.

With 170,000 non-UK EU workers in the sector unemployment costs and shelf prices could be driven up. So it’s an anxious time for the sector. We asked Head of Retail and Wholesale, Sukh Nat what opportunities are there that the sector can capitalise on?

Right now we don’t know what tariffs will be introduced on cross-border trade with the EU, and how frictionless that trade will be. There’s also the question of access to labour and the legal and regulatory environment post-Brexit.

But there are some positives. New trade deals with large economies such as India and China could see tariffs reduced, boosting sales and reducing supply chain costs. Those who are brave and ambitious could look globally for trade and sales growth.

Santander’s view:

The sector expects to take on more staff in the next 12 months (79%) and invest in product development (74%) so there is still a high level of confidence in the future.

A weakening pound is benefiting international retailers offsetting UK import costs by capturing new international markets and revenues. Innovation is required to overcome the potential for slower product deliveries due to trade barriers and to continue to attract EU workers into UK businesses.

Sources: Santander Trade Barometer Spring 2018 update - A Fair Brexit For Consumers, Autumn 2017

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