At the Conservative Party conference in Birmingham this month, Theresa May announced that Article 50 of the Lisbon Treaty would be deployed by the end of March 2017, signifying the UK’s intent to leave the EU by summer 2019. Although this was expected sometime before the end of the year, the announcement sent the pound spiralling to a new 31-year low against the dollar as the impacts of the UK’s exit from the EU were once again thrown into the spotlight.
So what have been the impacts so far?
We have a new Government for a start. And while many believed a new cabinet would look to continue the work of its predecessors, Theresa May et al soon dispelled such belief.
New Chancellor, Philip Hammond, set-out the Government’s economic stall by axing Osborne’s deficit target, announcing instead a focus on fiscal stimulus, such as spending on homes and transport. I welcome such fiscal measures, but have concerns over the Government’s commitment to the Northern Powerhouse and Midlands Engine proposals of its precursor. More than ever, it’s critical that we look to rebalance economic growth by investing in important cities such as Birmingham, Manchester, Liverpool and Leeds.
The depreciation of the pound has been a mainstay of the post referendum economy, but while Sterling has declined, the FTSE came close to an all-time high on 4 October, once more highlighting that there are both winners and losers of any market change.
Figures from the Federation of Small Businesses in September revealed that confidence among SMEs reached a 4-year low in the aftermath of the Brexit vote. Correspondingly, our own quarterly SME Confidence Tracker has shown a decline in optimism amongst UK businesses. Indeed, our latest report shows SME confidence at its second lowest reading since 2014, with flat sales growth over the last three months.
Shoots of optimism?
But while the impacts of the vote have undoubtedly created a mood of uncertainty, it hasn’t been the disaster that many predicted.
Chief Economist at the Office for National Statistics, Joe Grice, recently noted that data since 23 June does not reflect a huge shock to the UK economy. Similarly, while acknowledging that it is premature to assume Brexit will have no significant impact, the OECD backpedalled on its initial warning that Brexit would damage the economy, revising its growth forecast for the UK.
Echoing this sentiment, in our latest SME Confidence Tracker, more than a third of SMEs told us that Brexit hasn’t negatively impacted their businesses and the same proportion (37%) said it’s too early to tell. And despite a general picture of stagnation and flat sales growth, there are some green shoots of business optimism as SMEs look to get back to business after an unsettled summer.
Notwithstanding reports of subdued investment since 23 June, our Tracker for Q3 shows that 75% of SMEs invested in their business over the past three months. Investment in new products and services has doubled in the past year and those investing in overseas trade has continued to grow, with three times as many businesses investing in export activity in Q3 than in Q1 2014.
So while Spring 2017 is an economic lifetime away in the current climate, for now it seems that Britain’s small businesses are taking advantage of a period of relative quiet in order to prepare themselves for the year ahead. This includes preparing themselves for a future outside of the UK, irrespective of the macro-economic impacts in 2016.