New research from Bibby Financial Services shows how a combination of a lack of clarity around Brexit negotiations and bad debt are holding back UK SMEs
From the increasing problem of late payments to reduced VC investment, the market uncertainty since last year’s referendum has caused plenty of problems for UK startups. And now a new report shows that SMEs are holding back investments due to the uncertainties around Britain’s divorce from the EU. In fact, one expert is even worried that SMEs are struggling with a rise in bad debt could potentially be a sign that the overall economy is heading towards a recession.
Having looked at data from the second quarter of 2017, the latest SME Confidence Tracker report from Bibby Financial Services, the invoice-finance company, revealed that the value of unpaid invoices written off by SMEs jumped by more than 70% compared to the same period in 2016, increasing to £20,403. The report also showed that small businesses invested less in their own companies during the second quarter of 2017 compared to the same quarter last year, with average investment falling from £101,920 to £65,782.
Given startups have previously identified market uncertainties as their main challenge, it’s hardly surprising that the report demonstrated this as the primary cause of SMEs holding back investment, with 28% of small businesses citing it as a reason. Additionally, 26% said that rising costs were a great concern and 25% said they wanted to build up the company’s reserves, while one in five said uncertainty over Brexit was preventing them from investing in their businesses over the months ahead.
And according to David Postings, global CEO at Bibby Financial Services, the report could point towards an oncoming recession. “SME activity is often a barometer of wider economic performance,” he said. Postings pointed out that when SMEs are hiring more and undertaking more work, then that usually means that the wider UK economy is doing well. But fewer SMEs investing in their operations could indicate that something more troubling lies on the horizon. “It is possible that this is a sign that the UK is heading for a recession but it’s still too early to call,” he said. “We will know for sure over the coming months.”
Commenting on the market uncertainties caused by Brexit, Postings said: “Businesses don’t know what’s round the corner and this is having a negative multiplier effect on supply chains around the country.” He urged the government to be clear in its negotiations with the EU and committed to create a balanced economy across the country.
With Brexit negotiations resuming this week, here’s hoping there will be some clarity soon.