With less than eight months to go until the UK’s formal EU exit, the economy remains in a state of flux. While economic growth has picked up following a frosty start to the year, there’s no hiding the fact that things feel pretty fragile.
As a ‘no deal’ scenario becomes increasingly possible, some are excited by this prospect. Jacob Rees-Mogg recently said: “A WTO is a good Brexit. It’s a clear Brexit.”
I would argue that the only thing that is clear at the moment is that we are in a fog of uncertainty.
But while those in the pro-Brexit camp see an opportunity to wrestle tighter control of domestic and foreign policy from Brussels, others see a significant threat.
The small and medium-sized business owners we speak with tell us they are concerned about Brexit. And increasingly so.
In our latest SME Confidence Tracker more than half (55%) say they believe it is damaging the economy and one in five say that it has discouraged investment over the coming months. Tariffs and border checks are a real concern for importers if the UK was to adopt WTO rules, and currency fluctuations continue to affect profit margins for both importers and exporters. Businesses need clarity, not fog, they need certainty, not ambiguity.
Rising bad debt – an issue significantly overshadowed by its close sibling, late payment – is often a sign that a recession is on its way. Our research shows that a third (33%) of SMEs have suffered from bad debt in the last 12 months, with the average business writing off a total of £16,185. As supply chains are disrupted and cashflow is squeezed over the coming months, this figure is only likely to increase.
Official statistics also show a sharp increase in the number of businesses becoming insolvent – another red flag. Office of National Statistics (ONS) figures for Q1 2018 showed that 4,462 businesses failed, an increase of 12.6 per cent from Q1 2017, in addition to the administration of some once-leading high-street brands, including Toys R Us, Maplin and Poundworld.
All the while, we are seeing an increasingly worrying trend in business funding. A plethora of new market entrants is driving down margins and encouraging riskier lending practices. I have previously warned of this and it’s little wonder there are now genuine concerns that the market is overheating.
In my mind, this melting pot of what-ifs and uncertainties, coupled with a sluggish economy and bullish lending must lead to a correction. Only time will tell whether an official recession is triggered in 2018 or early 2019.
Either way, the UK economy is beginning to resemble a chaotic episode of Noel’s House Party. We’re all just hoping there’s a Gotcha moment around the corner.