November 21, 2017      3 min read

UK business confidence has seen better days. Small businesses are increasingly concerned about their long-term prospects, signalling concern for the wider UK economy. In June 2017, the Federation of Small Businesses noted the first real dip in business confidence since the Brexit referendum in June the year earlier. As Brexit draws nearer, that dip is only likely to deepen.

UK businesses, and particularly SMEs, are concerned about inflation, a weakening pound, increased business rates on commercial property, higher ordering costs and the looming impact of the UK withdrawing from the European Union. That said, it’s not all bad news; a weak pound has made the UK a popular tourist destination and, potentially due to exchange rates, brand UK still enjoys good market cut through globally. Let’s take a look at the state of (and outlook for) SMEs in the UK in the 2018 financial year.

A Big Grey Cloud

Optimism is in short supply among UK SMEs in 2017, particularly in export focused sectors such as the manufacturing industry. Many small businesses are fearful of losing crucial market access to the European Union and to countries with which the European Union has negotiated preferential market access and tariffs. Small businesses that rely on imported materials (particularly imports from other European countries) are concerned by likely increases in input and ordering costs. Equally, many businesses are concerned about labour shortages – the flow of labour from other parts of the European Union is likely to be severely restricted at some point in the near future.

The Real Issues for SMEs

Although the external environment looks increasingly challenging for SMEs, many small businesses are turning their attention to their own operations. As bit players (at an individual level) in the wider UK economy, SMEs typically realise that they enjoy a limited ability to shape the economic forces that impact their businesses. In other words, running a business will always be challenging, Brexit or not. Smaller firms are generally focused on improving cashflow, increasing market share, reducing ordering costs and better managing inventory, as these factors have a direct impact on UK SMEs’ ability to compete with other European companies.

Signs of Optimism?

Not all UK businesses are suffering. Exporters have benefited significantly from a weakening British pound. As the value of the sterling plummets against foreign currencies, buying products priced in pounds from UK companies becomes effectively cheaper for consumers abroad. This creates an opportunity for UK businesses to aggressively build market share and boost sales volumes with SMEs able to focus on growth without deprioritising cashflow. Many British businesses are also turning to other international markets as a hedge against European market access significantly worsening. Westminster appears to be approaching the threat of losing European market access privileges by developing stronger trading relationships with other major economies and Commonwealth countries. Equally, SMEs may find that suppliers from outside of Europe can offer increased reliability and lower ordering costs in a post-Brexit era.

Individually, SMEs have a limited ability to shape economic trends. Rather, the current uncertainty should be an opportunity to grow and become increasingly competitive whether you’re optimistic or concerned about the future of UK small business.

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