What impact the United Kingdom’s decision to leave the European Union will have on any and every industry is dominating national discourse. With the dust of 2016’s referendum on membership having settled, the time for emotive conversation about the bloc has been replaced by a real sense of urgency for UK companies to strategise for what life might look like post-Brexit. It is a far-reaching issue – covering exchange rates, imports and exports, immigration and skills policy – which will be felt across the breadth of the economy.
As a net importer, the UK is vulnerable to any depreciation in the value of its currency and will need a plan to navigate past potential tariffs. Helping small and medium-sized enterprises (SMEs) understand the post-Brexit economic landscape is a discussion which needs to be had, and thus formed the basis for a round table event in Westminster hosted by Western Union Business Solutions (WUBS) and the New Statesman.
Nawaz Ali, manager of business intelligence at WUBS, noted in his opening address to the table that “60 per cent of small businesses in the UK cite lower costs as the main reason they import.” According to findings from a WUBS study, he said, “despite currency volatility being cited by 44 per cent of businesses as one of the biggest barriers to effective international trade, 75 per cent of businesses don’t effectively plan for it.” SMEs, Ali explained, “too often lack sufficient support from their banks” and so WUBS has launched its first FX Barometer – a quarterly analysis of trends to help with forex planning, “which will help them to decide when or when not to buy or sell currency, or their products.”
Rain Newton-Smith, chief economist at the Confederation of British Industry (CBI), suggested that the volatility of sterling – the pound dropped to a 31-year low after the Brexit vote to $1.20, but has since recovered to $1.40 – was having “some mixed effects for SMEs”. She said: “The weaker exchange rate has led to higher inflation and at the same time the UK’s average pay hasn’t kept up. There’s a flip side to that as well, though, when you look at the manufacturing sector for example.
It’s particularly relevant for some of the SMEs who are exporting and you can see export orders are increasing. You could argue that the weaker exchange rate is making some of our businesses feel like they need to be more competitive.”
Newton-Smith said that any further recovery of the pound would depend on if the UK could negotiate a “smooth transition” while exiting the EU, but that would be influenced by reasons which extend far beyond economics alone. “There is a lot of geopolitical risk out there.”
She agreed with the Western Union executive that “international payments or trade can’t just stop because of Brexit” and highlighted that “we do live in a world of complex global supply chains”. Newton-Smith continued: “The idea that you can be a pure importer or a pure exporter doesn’t really exist anymore. I think the other thing we have taken away from our conversations with SMEs is that the challenges around Brexit and preparing for a new relationship with the EU is actually a lot more serious for small businesses.” Martin McTague, policy director for the Federation of Small Businesses (FSB), identified a willingness from SMEs to “run quite close to the wire” as one of the major challenges for the sector. “If you think about how many SMEs export to the EU and import from the EU, they don’t have the same resources in terms of people, time and even bandwidth as bigger companies, so there needs to be more support and scrutiny [from government] to make them prepare a lot sooner.”
That appetite for clearly-defined policy and guidance at the round table was clear. Anastassia Beliakova, head of trade policy at the British Chamber of Commerce (BCC), rued that “almost half of our members have said that they don’t take any steps at all to prepare [for Brexit]”. She said that the BCC was trying to encourage its members to be “more proactive”. Concordantly, the BCC has produced a “Brexit check-list” designed to help SMEs to compartmentalise their costs. “The list means that they can be aware of policy, for example leaving the customs union, and would force them to look at their contracts [for staff] and if they were in line with compliance issues.”
Giles Derrington, head of policy for European exit at techUK, summed the concern up: “The issue of risk assessment is still an incredibly hard lift for a small business, and so technology and more resources are needed to help them carry it out. So if there were some international standards, say for a product being manufactured, then they would be aware of what those were and what they needed to do to meet them.”
The issue of an availability of information, Tej Parikh said, was accompanied by an issue of an availability of expertise. The senior economist at the Institute of Directors raised the topic of skills for SMEs and whether they were suitably equipped with the human resources to discern
the information being presented to them. “It’s one thing knowing what’s out there,” he said, “but it’s another being confident enough to actually use these products.”
This sentiment was echoed by the business editor of BBC News, Simon Jack. Jack suggested that for SMEs to be successful, the narrative around Brexit “had to shift from being about damage control”. The best way to do that, he said, was with more inward investment. “The US is the single biggest country the UK exports to. The biggest single country that Germany exports to is China. There is not a trade deal on either of those export relationships, and there is nothing broken about that. We should use our energy to look at skills and innovation – and create better products that people want.”
Paul Uppal was also keen to shine light on the opportunities attached to trading outside of the EU. The small business commissioner at the Department for Business, Energy and Industrial Strategy (BEIS) drew inspiration from India. “From my experience, businesses are increasingly trying to take matters into their own hands, and forge partnerships that they themselves have control over [rather than as part of a bloc]. Consider the Access India programme, where the government identified British businesses that could directly collaborate with their companies. You don’t need someone else to draw up the terms for you.”
Ultimately, the support on offer to SMEs in the UK, the round table concluded, would determine their ability to come through the Brexit process better off. Being aware of regulation and market trends, investing in technology, and maintaining a steady flow of access to top talent were the main take-homes from the event in Westminster. Each of the participants agreed that they had an important role to play in helping SMEs to navigate the future with support and practical solutions that were simple to use, including the BCC’s Brexit check-list and Western Union Business Solutions’ currency forecaster tool. “Simple solutions like these, along with expert guidance and advice, will help make a big difference to SMEs over the coming months,” Ali said.
To help plan for better currency outcomes, explore Western Union’s FX resources.
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