Uncertain times ahead as the UK prepares to leave the European Union
24 January 2018
Despite the generally gloomy economic prognosis over the past few months, export orders have been booming recently for UK SMEs. In fact, a survey from the CBI found that, in the three months up to July, export order growth was the highest since April 2011.
But while low exchange rates and robust global demand has certainly been a boost to British SMEs trading overseas, as the UK prepares to leave the European Union (EU) there could be uncertain times ahead.
Although the survey showed strong export order growth figures, optimism about the current business situation was broadly flat. There were concerns that possible labour shortages and access to talent could put pressure on business after Brexit.
Currently many SMEs rely on foreign workers for to plug gaps in the skills pool – and if these workers are no longer available post-Brexit, it could prove detrimental for their business. It is also not known what kind of tariff-free trade routes will open up for the country for exports to continue to be a success – and any tariffs imposed after Brexit may outweigh the benefit a low exchange rate is bringing.
Funding is another concern. Institutions such as the European Investment Fund (EIF) have provided roughly around a third of investments in UK-based venture capital funds and if this relationship ends it could be another significant setback for SMEs.
Although there is much uncertainty surrounding the UK as it prepares to leave the EU, there are projects being established to help stem any potential holes the loss may create, and to help UK businesses be more competitive on a global scale. The government has set up a $1billion National Investment Fund to invest in cutting-edge start-ups set to become the next unicorn (a start-up company valued at more than $1billion).
There are more unicorns created in the UK than in Europe, but we are dwarfed by the US, which accounts for 54 per cent of start-up companies valued to at least £1billion, while China accounts for 23 per cent. Only 4 per cent are based in the UK. A consultation by the government has identified a £4billion funding gap between American firms and British firms, while figures have shown that fewer than 1 in 10 firms that receive seed funding in the UK go on to get fourth-round investment, compared to nearly a quarter in the US.
Top US firms are also younger than UK firms – again suggesting the US is more effectively growing new businesses into large-scale companies. Ten of the UK’s largest 100 listed firms were created after 1975, compared to 19 in the US (and only two in Europe).
It remains to be seen whether the National Investment Fund is enough to help boost small companies in the UK to their full potential. While it is a positive step for the country, there is still the question of skills shortages in the UK – and given that unemployment remains near record lows while firms are struggling to hire and develop workers, SMEs could face some difficult times ahead.
This article was published in our Business Reporter Online: SMEs.