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Beating the Brexit Blues
With the Brexit deadline of 31 October looming, and with no clear answer on what will happen after that, business confidence has continued to decline across the UK.
The latest Santander Trade Barometer shows that, while 63% of businesses have already been impacted by Brexit, more than a third of them haven’t made plans to deal with its repercussions. This number rises to 54% for businesses trading only in the UK.
But while Brexit and its potential ramifications are causing concern for some, there are potential bright spots on the horizon which some businesses are hoping to seize.
The current business climate
The results show that confidence has dropped to its lowest point since the Santander Trade Barometer was launched in 2016. And with GDP also taking its first hit since 2012 (contracting by 0.2% in the second quarter of this year), combined with growing fears for the world economy, the businesses that are making plans for Brexit are taking a defensive stance.
For instance, businesses are planning or already implementing a number of measures, with 46% looking to cut their overheads, 38% opening bank accounts outside of the UK and 33% reducing their headcount. While these may help keep costs low in the short-term, there are concerns that some of these measures could negatively affect growth in the longer run.
The potential impact
Reducing headcount is one of the avenues a third of businesses are looking at to curb the impact of Brexit, but this may also hold back expansion. Half of businesses fear they won’t be able to attract, or possibly retain, skilled staff, which may influence their growth plans.
On top of that, 61% of businesses expect that, in the next 12 months, Brexit will directly impact them in a negative way, while more than half also fear a slowdown in the UK economy. Another fear that’s risen over the last six months’ concerns supply chains. Businesses believe that both EU and non-EU supply chain services and links could be hit, and that tariffs for both could also increase. This is compounded by concerns that imports and services provided by EU companies could also be disrupted, driving costs up even further.
Growth in new markets
Many businesses are looking beyond Europe to other overseas markets when it comes to expansion. Businesses are particularly interested in the new trade deals that are being discussed, with 33% believing a USA trade deal should be top priority, 24% thinking Chinese markets are the answer and 22% looking at Australian consumers for growth. When asked where they expect to see growth over the next year internationally, 30% believe it’ll be in the USA, 19% in China and 17% in Australia.
Compare those sentiments with markets closer to home, and the numbers are quite different. Though 59% of businesses are already trading in Germany (the largest trading partner of the UK in the EU), only 14% believed they’d see growth in that market, with the numbers being even lower across other EU markets, like France, Spain, Ireland and Italy. Europe will continue to be a key market for UK business activity, but it's clear that businesses are also looking at these new markets to fill the gap.
Investing in the future
To reach the likes of the USA, China and the Asia-Pacific region, businesses need to be able to invest in their own growth and future. But due to Brexit uncertainty, more than a quarter of businesses are holding back on planning or investing in growth and development. This is born out of the desire to hold onto cash to prepare for the unknown. However, these delays could see further negative impacts on already disappointing productivity.
Businesses want stability, which will encourage them to invest in growth. They need security, so they can strive to reach new markets with confidence. They need support, so they can continue to thrive and succeed. The details of Brexit and what that means for EU-trade may be unclear, but with the right guidance, businesses won’t be left on their own to find the right path.
Flower and White's success
And that’s where Santander can help. For example, a fast-growing West Midlands SME in the Food and Drink sector called Flower and White were thinking about expanding to the USA but weren’t sure how to identify opportunities in the market. They spoke to a Santander Relationship Director, who invited them to the Santander Fancy Foods Webinar to see if there was a gap in the market they could fill.
After the webinar, Flower and White were introduced to Santander’s market entry partner, Altios, where they agreed to a contract which introduced their goods to some distributors. They were also invited to the Summer Fancy Foods exhibition and provided a stall by another Santander partner at the Food and Drink Exporters Association. They managed to meet with several key distributors, retailers and sales experts, who helped to develop their US business exports.
As a result of this support, they’re now in the final stages of agreeing a national distribution contract with a key USA Food and Drink distributors.