UK Small Businesses Optimistic Post Brexit

Written by Karen Bryan

A recent survey of 500 UK small businesses about the effects of the Brexit vote, commissioned by Boost Capital, highlighted that 90% of interviewees had no regrets about their votes in the referendum. 57% had voted leave and 43% had voted remain.

In the face of uncertainty over the terms and timing of the UK’s exit from the European Union (EU), small businesses appear to be generally optimistic. 45% of those taking part in the survey thought that there would be no effect on their business in the next 12 months. A slightly higher 48% thought that there would be no effect on their business in the next five years. The majority, 58%, are not taking any precautions to protect their businesses against Brexit.

I am rather surprised by this optimism. In my opinion, it’s a bit of sticking their heads in the sand, possibly due to the complexity of so many unknowns.

Let me give an example of the possible effects of Brexit, using  as an example a restaurant which primarily uses local produce and employs only UK passport holders. The owner may assume it won’t be affected by Brexit.

Firstly, let’s play out the scenario of Brexit having several negative effects. UK growth slows and wages stagnate while there is an increase in inflation. Then customers will have a lower disposable income and may eat out less. The locally sourced ingredients could become more expensive if there are fewer EU workers to harvest the crops. This would reduce the profit margin if the restaurant absorbed these price increases. If the restaurant increased prices, then they might get even fewer customers.

Now let’s look at the scenario where Brexit brings many positive effects. The UK economy booms, wages outpace inflation, increasing customers’ disposable income and they eat out more. Although the restaurant may have to pay higher wages to staff, this could be partly offset by economies of scale, e.g. a discount to buy higher volumes of ingredients. If there hadn’t been forward planning for expansion (e.g. a move to larger premises and recruitment of more staff), the restaurant might not be able to capitalise on the increased demand.

The two main challenges identified in the survey were recruitment and costs. Although there are three million EU passport holders currently working in the UK, 60% of businesses taking part in the study only employed UK passport holders. 46% thought that foreign workers should be permitted in the UK, but with restrictions. What these restrictions might be is anyone’s guess. The UK Government has so far refused to give a guarantee that any EU workers currently in the UK will be allowed to remain.

Although firms which export could benefit from the fall in the value of sterling, this benefit could be cancelled out if they have to pay higher prices to import materials in order to manufacture their products. Exporters could also be faced by tariffs for imports to the EU. While there is great potential in new trade agreements with countries outside the EU, these deals could take some time to negotiate and implement.

It doesn’t sound as though the majority of UK businesses are planning any immediate expansion, as 72% of those interviewed were not expecting to take on any new workers in the next 12 months.

All in all, it’s a tricky situation for businesses, as no-one is sure of the positive or negative effects of Brexit.