Brexit: Small businesses increasingly pessimistic about UK economy as political uncertainty rises

Confidence in the wider UK economy slumped to -22 from -13 last year according to an index compiled by Capital Economics

Ben Chapman
Thursday 12 October 2017 11:11 BST
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Brexit, rising inflation and increased political uncertainty have all weighed on business confidence over the last 12 months, according to a report from research firm Capital Economics
Brexit, rising inflation and increased political uncertainty have all weighed on business confidence over the last 12 months, according to a report from research firm Capital Economics (AFP/Getty Images)

Small businesses are now more worried about the future of the UK economy than they were in the aftermath of the Brexit vote last year, a new survey has found.

Brexit, rising inflation and increased political uncertainty have all weighed on business confidence over the last 12 months, according to a report from research firm Capital Economics commissioned by Amazon.

Its index of business optimism fell to -8 from +5 in September 2016. Businesses in all regions apart from the West Midlands expect business conditions to deteriorate over the coming year, the survey found. Confidence in the wider UK economy slumped to -22 from -13 last year.

“A year ago shortly after the EU referendum vote, SME confidence in their own businesses was positive,” said Mark Pragnell, chief project economist at Capital Economics.

“However, over the last 12 months SMEs have witnessed a series of key political moments, from the triggering of Article 50 through to the snap General Election which may have contributed to the swing of confidence,” Mr Pragnell said.

Survey respondents ranked political uncertainty and higher inflation as the greatest risks to growth over the next year.

Just 12 per cent of SMEs predicted Brexit would have a positive impact on revenue while 39 per cent said it would have a negative impact. Some analysts had suggested the weakened pound would begin to help the UK’s exporters by making their good cheaper for overseas customers.

But the boost has not materialised. The UK racked up a record deficit for trade in goods in August, official data showed this week. The Office for National Statistics reported that the UK exported £28.1bn of goods in the month and imported £42.4bn, leaving a deficit of £14.2bn, the highest on record.

Capital Economics found that SMEs believe the Government must prioritise negotiating a new trade deal with the EU over any other region or country, with over half of exporters saying the EU was one of the regions that contributed most to their export revenue in the past year.

Brexit talks have made little progress so far, according to EU officials. Margaritis Schinas, the European Commission’s chief spokesperson said on Monday that there has been “no solution found on step one, which is the divorce proceedings” and that “the ball is entirely in the UK’s court for the rest to happen”.

Political uncertainty has been heightened by increased speculation over Theresa May’s future as prime minister. Last week it emerged that former Conservative party chairman, Grant Shapps, was leading a group of around 30 MPs planning a coup to topple Ms May. The plan ultimately failed after Tory MPs publicly expressed support for Ms May, but doubts remain over how long she will stay as leader.

Doug Gurr, UK country manager at Amazon, said that SMEs should mitigate the risks they face by embracing the digital economy.

Emma Jones MBE, founder of Enterprise Nation, which represents over 70,000 small businesses in the UK, said many entrepreneurs were generally positive people but warned the Government that this does not mean they should be taken for granted.

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