Business confidence amongst UK SMEs is on the increase, with just under half expecting sales to increase over the next three months, according to new data from business funder Bibby Financial Services (BFS).
In the week that Prime Minister, Theresa May, triggered Article 50 and European Council President Donald Tusk outlined the EU’s strategy for Brexit negotiations, data from BFS’s SME Confidence Tracker report reveals that nearly half (48 per cent) of SMEs expect sales to increase over the next three months – the highest level since the EU referendum last June.
Confidence despite Brexit
The latest figures show strong confidence in UK key regions, with businesses in Yorkshire & Humberside (56 per cent), the East Midlands (55 per cent), North East (54& per cent) and West Midlands (53 per cent) all expecting strong growth over the months ahead.
However, SMEs in London – who overwhelmingly voted in favour of remaining in the UK – have the lowest confidence across the UK regions with only 38 per cent expecting sales to grow.
Edward Winterton, UK chief executive officer at Bibby Financial Services, says, ‘Nine months have passed since the UK’s historic referendum result, which sent SME confidence plummeting. However, since then, there has been a significant shift in mood on the run up to the formal triggering of Article 50. Confidence is returning, seemingly because business owners have seen no reason to suggest a separation from the EU is going to have a negative impact their businesses.
‘However, there are pockets of uncertainty signalling a disconnect between the regions that voted to leave and those that voted to remain. This is particularly evident amongst businesses in London and may be explained by the differing business composition in the capital. The perception is likely that financial and professional services firms, are more likely to be faced with change due to Brexit, than smaller construction firms, for example.’
How will Brexit affect small businesses?
European Council President, Donald Tusk, announced that discussions over a trade agreement with the UK could commence once sufficient progress is made on a separation settlement. However, as Theresa May looks to commence negotiations following the triggering of Article 50, data suggests that many of the UK’s small businesses are apathetic about the outcomes of such discussions:
· Only a third (34 per cent) of SMEs expect Brexit to have a negative impact on their business.
· Two fifths (42 per cent) expect Brexit to make no difference at all, while 17 per cent state that Brexit is likely to have a positive impact.
· Just 7 per cent said staying in the single market was the most important outcome from Theresa May’s negotiations.
· Only 2 per cent say staying in the customs union was most important to the future of their business.
The research also finds that the expectation of growing sales is matched by an ambition to expand over the next twelve months. More than half (58 per cent) of SMEs plan to expand their business in the UK, while 38 per cent plan to diversify into new sectors and product areas in 2017.
Edward comments, ‘It’s encouraging to see UK businesses looking to expand over the coming months, and that many are considering new products as a means of growth. However, while renewed confidence is good for the UK, there’s no telling whether this will continue. While SMEs may seem indifferent about the country’s Brexit negotiations, much is riding on the government’s discussions with Brussels and subsequent decisions relating to legislation and policy, not least surrounding trade and the movement of labour.’
While confidence amongst businesses has returned, SMEs are sending clear warning signs over key issues. Bad debt – money written-off due to non-customer payment – has risen continuously since Q2 2016 with the average annual amount standing at £16,795, up more than 40 per cent in the past year. Furthermore, business owners reveal their biggest concerns in 2017 are closer to home and include winning new customers, finding and retaining quality employees and managing cashflow.
Edward concludes, ‘Time will tell whether confidence has returned for the longer term or if this is simply the calm before the storm. The EU has outlined its strategy for negotiations over Brexit, suggesting that it is open to discussing a trade agreement with the UK within the two year separation period. It is now that the true impact of Brexit will start to be felt and the devil will be firmly in the detail, when it comes to negotiating the UK’s trading relationship with the EU moving forward.
‘What is clear for now, however, is that among SMEs concerns persist over customer payment practices, hiring quality staff and accessing finance for growth, all of which businesses need support with.’