Brexit poses an opportunity for innovative entrepreneurs

Written by on August 16, 2016 in Features with 0 Comments

advertising agency owner and his teamOn the 23rd June 2016, the UK voted ‘leave’, surprising UK overseas investors which wiped billions off the FTSE 100, heavily devaluing the pound sterling seeing record lows since 1985, followed by a radical shake-up in UK government, interest rate cuts to boost lending and encourage spending, and a sharp drop in SME confidence.

But it’s not all doom and gloom for UK businesses, “the UK remains a great place to invest”, according to Nigel Wilson, the boss of Legal and General.

But what does Brexit mean for companies?

Firstly, Brexit opens up a huge opportunity for exporters. Given what was coined the ‘overvalued pound’, sterling is now priced more competitively versus it’s close dollar and euro counterparts, meaning UK companies who shift their strategy towards exporting to other markets could compete and flourish.

Particular industries that are interesting and could see a radical shift towards exports are the car and automobile sector. The UK car industry exports 40 percent of its vehicles to Europe, and given the relatively cheaper purchasing price, car exporting could grow. However, the trade tariffs associated with cars are up for question. If the UK invokes Article 50, car tariffs could see an 8-10 percent additional fee which could make exporting cars less favourable to Europe.

“Now is a great time for UK exporters looking to expand overseas into other markets”, says James Sinclair at Trade Finance Global.

According to recent trade figures from the ONS, the UK saw a surprisingly sharp rise in imports, and a small rise in exports, which did in fact widen the trade deficit, worrying investors about a potential global recession, although this mixed data showed a potential boost in the UK economy. It is very likely that there will be a material increase in exporters given the weak pound, which could help close the £5.1bn UK trade gap.

The current EU free movement agreement and reliance on labour migration in the UK is one of the most contentious post-Brexit, and unfortunately the long term future implications remain uncertain until real agreements have been made. Theresa May has however made it very clear that she’s unlikely to invoke Article 50 until January 2017, therefore any real changes in employment law and EU migration won’t be impacted until January 2019 at the earliest.

Equity Investment Slid Post-Brexit

June 2016 saw a significant decline in equity funding at seed, venture and growth phase, as investors were cautious about investing in the UK.

This may be an alarm bell for entrepreneurs and VC investors. According to Beauhurst, deal numbers saw their worst week on record in 2016 in the last week of 2016. Deal numbers also fell by 20 percent in H1 2016 compared to the last half of 2016.

It’s a different story for Debt

On Thursday 4th August, the Bank of England slashed interest rates to a record 9 year low of 0.25 percent, from 0.5 percent.  How does this help?

Interest rate cuts generally do two things: encourage consumers and businesses to borrow (although it compromises revenue and profit from the banks), and stimulates spending to encourage growth (why keep your money in low interest bank accounts?).

The UK is the second largest market for debt funding after the US, and, given the UKs large export portfolio and the devalued pound versus major currencies, the export potential for organisations and startups is huge. The unknowns around trade tariffs in a post-Brexit world remains unclear, but given Theresa May’s recent decision to delay pulling Article 50, we won’t see any legislative changes until early 2019 at the earliest.

In conclusion

For businesses and SMEs, Brexit poses an opportunity for innovative agile businesses, and given the calibre of fintech companies in the UK, there are huge upsides for any entrepreneur looking to start a successful business in a post-Brexit world.

Written by Trade Finance Global.

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