Mid-Market Firms Drop Investment Plans Post-Brexit

The markets panicked in the immediate aftermath of the U.K.’s Brexit vote, then the dust seemed to settle. Only now is the nation beginning to see how the decision will make an impact in reality, and mid-market businesses are feeling some of the largest hits.

The latest research from Hitachi Capital and the Center for Economic and Business Research (CEBR) uncovered a major financial impact on companies in the U.K. after the Brexit vote. According to their report, released Monday (Nov. 14), billions of pounds worth of investments have been abandoned by small businesses as a direct result of the vote.

That finding, Hitachi concluded, means businesses need to adjust their business plans as they continue to play a key role in the economy of a nation that continues to act as a major trading partner on the international stage.

Abandoned Investments

Hitachi researchers found £65.5 billion ($81.5 billion) worth of investments no longer being pursued by businesses in the U.K., with a third of firms reporting that they have stepped away from their investment plans as a direct result of Brexit.

A decline in the British pound was cited by more than a fifth of corporate professionals as their main reason for abandoning investments. Nearly the same amount cited uncertainty of the U.K.’s participation in the European single market, as well as uncertainty of the national economy.

In all, 42 percent of large and mid-sized companies said they have made some kind of change to their investment plans because of Brexit; mid-sized firms have abandoned their investment plans more than smaller companies, according to the report. The data signals small companies’ ability to be shielded from some of the residual economic effects of the Brexit vote, researchers said.

Researchers warned that, if these concerns remain unresolved, companies will continue to back away from their investment plans.

National Players

Hitachi and the CEBR emphasized companies’ role to promote the U.K.’s position on the global market. If investment plans continue to be left unfulfilled by these companies, researchers warned it could have significant implications for the nation’s economic strength.

“Hitachi is calling on businesses, which are the drivers of the U.K. economy, to adapt to these uncertain times and seize the opportunity to forge new partnerships globally, whilst continuing to engage with the single market,” stated Hitachi Capital CEO Robert Gordon.

He added that 70 percent of businesses told researchers that they would consider resuming their investment plans following a resolution of the U.K.’s participation in the European single market. “But they must remember that access is different to membership, and this is how both China and the U.S. are able to engage with the EU,” Gordon warned.

Experts also highlighted the U.K.’s ongoing importance to Europe. According to Gordon, EU-to-U.K. exports valued £290 billion ($360 billion) last year, a figure he said should reassure firms of the U.K.’s ability to negotiate trade deals that will be beneficial to them.

“We must pull together and continue to make investments to send this message to the rest of the world,” he stated. “Looking outwards, not inwards, is how the U.K. will thrive in a post-Brexit world.”

It may be easier said than done, however. Cross-border corporate payments company Covercy released its own data in September, which found that U.K. importers have been particularly impacted by Brexit, with the British pound’s drop in valuation leading to a 16–18 percent increase in the cost of doing cross-border business for British importers. That, coupled with a sharp decline in EU imports from the U.K., could spell trouble for U.K. importers.

“Importers have seen the cost of doing business shoot up to unprecedented and worrying levels, which actually threatens their survival,” said Covercy CEO Doron Cohen at the time the research was released.

With that in mind, corporations can’t keep the U.K. economy on its feet alone. Hitachi’s Gordon also emphasized that the U.K. government must do its own part to support corporate growth and participation in market strength.

“The fact that nearly three quarters of businesses would resume with investment if current pressing issues were resolved sends a clear message from businesses to the U.K. government — act quickly to prevent further losses,” he said.