The Brexit referendum result came as a shock to most of us. Three months on, we look at how Brexit has impacted on small businesses so far.
Of course, it’s still too early to point to a definitive impact of Brexit on the UK economy. Expert opinion varies, proving to be far too pessimistic, or too optimistic so far. This is because although the decision to come out has been made by the majority of the British people, the precise terms of Brexit, and even the date when it will actually happen have still not been decided.
Whatever the final arrangements for leaving Europe and despite an apparent increase in consumer confidence, the effects on the British economy are already being felt.
A weaker Pound
The Pound is weaker against the other world currencies – although it has recovered from its lowest point.
Perhaps more significantly, the Bank of England has cut interest rates to a record low of 0.25% in a determined bid to stave off a Brexit triggered recession. The Bank of England’s interest rate cut to 0.25% was designed to boost growth – but are banks passing on the reduction?
Small businesses are hoping to benefit from the cut the £100bn monetary stimulus package providing banks funding. Banks are obliged to reduce interest by 0.25% on their variable rate loans that track the Bank of England base rate. Lowering their standard variable rate and fixed loans can be implemented at their discretion.
There seems to be little sign that banks are doing this. While many savings accounts have had their rates cut in August, there is scant evidence that loans are getting cheaper.
Even if they did, the reductions are likely to be small. Already historically low interest rates means lending to has been cheap for small businesses. Any cheaper lending is unlikely to spark a rush for borrowing. Funding for businesses is already relatively cheap – where firms can negotiate it.
Having said that, remember that it may pay to shop around. Smaller, second tier banks that are looking to get a foothold into the small business pace and can offer slightly better rates.
The drop in the bank rate has also meant banks are cutting their interest rates on savings accounts, so any small business owners with savings should review these.
Easier Exporting
The loss in value of the pound against other currencies has mixed results. On the one hand exporting has is more competitive with UK produced goods becoming competitively priced. It could well be time to look at the possibilities of exporting, particularly to countries outside Europe, where any relationship begun now could blossom if things sour with the EU.
Leaving the EU will make exporting to Europe more complex with the reintroduction of customs clearance procedures, if we leave the EU’s customs union.
On the other hand, if your business needs to import raw materials, your costs may have increased substantially. One solution is to arrange a ‘lock in’ to an exchange rate with a forward contract. These allow to fix an agreed exchange rate, guaranteeing a specific rate when the transfer is made.
It’s probably not essential to make massive bets on what is going to happen to exchange rates – but you want to be able to insure yourself against the exchange rate moving the wrong way.
The skills shortage
Money is not the only thing to be affected by Brexit. Access to affordable skills is a concern. Skilled migrant workers are essential in many sectors where domestic workers lack the necessary skills. Conversely, many companies are looking positively at the potential relaxation of employment laws. The potential reduction in the red tape involved in employing staff may bring greater flexibility to adjust their workforce in the future.
What you should do now
It is too early to know what the long term effects of Brexit will be, but it’s not too early to start preparing your business for a future that may have some serious pitfalls as well as major opportunities.
To look at the options available to you and your business, contact the Continuum team
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