Over 1.5 million UK SMEs have stopped trading internationally this year which could cost the UK £20 billion, due to the impacts of Covid-19 and uncertainty around Brexit. New research released by British fintech Currensea reveals that of the 80% of British SMEs (4.72 million businesses) that trade internationally in any given year, 1.18 million have had to pause directly because of the global pandemic and a further 283,000 because of Brexit.
This is a significant loss for SMEs, for many international trade is the lifeblood of their business. 82% say that it contributes up to 50% of their entire annual revenue, while 10% generate over half of their entire annual by trading abroad. This means any continuing halt in trade will have a seriously detrimental impact on business owners and, indeed, the wider economy, with SMEs’ international trade contributing over £200billion to the UK economy each year.
While Covid has hit SMEs hard, the study identified that the impending impact of Brexit means there’s no sign of letting up for the challenges they face. Roughly 283,000 firms have already halted international trade due to Brexit, with a further 650,000 stating that they will stop international trade altogether in a post-Brexit Britain. In total, 19% of SMEs have either paused trading or aren’t sure what their trading strategy will be next year.
In terms of the sentiment toward Brexit, the feeling from SMEs is mixed. While over a third (37%) believe potential new trade deals will have a positive impact on their bottom line, a similar number (31%) anticipate no significant positive or negative impact. Unsurprisingly, 75% state that Europe is currently their biggest trading partner, and interestingly it will remain the main partner for three-quarters of UK SMEs post-Brexit, even if interactions with those on the continent are trickier.
The biggest Brexit concerns for UK SMEs are:
- An increase in Brexit-associated costs (60%)
- Delays in receiving and sending goods (53%)
- Increased paperwork (49%)
“It’s understandably a turbulent time for SMEs in the UK at the moment,” said James Lynn, co-founder of Currensea. “Many businesses were concerned about Brexit and the impact it would have, and that was before coronavirus doubled down on uncertainty. While the nature and scale of the challenges we face are unprecedented, that doesn’t mean there isn’t support available via a number of channels.
“Institutions like the Department for International Trade, who can aid your business with tailored support, or government schemes such as VAT deferral or the Small Business Grant Funding, are essential resources for SMEs during the next few months and beyond. At Currensea, we recently launched our SME offering to enable businesses to save money when trading internationally. In a world-first, our debit card works with an SMEs existing bank account, enabling international card payments from that account but with zero charges.”
Another recent study released by Hitachi Capital Business Finance has also found that businesses are twice as likely to be concerned about the impact of Covid on their business as they were about the impact of Brexit. Asking a nationally representative sample of 1,107 small business leaders what they thought their biggest barriers to growth was in the next six months, the study revealed over half 51% cited the direct impact of Covid on their business operations. By comparison, a quarter (25%) were concerned about Brexit and its impact on their business.
Joanna Morris, Head of insight at Hitachi Capital Business Finance said: “The Covid-19 pandemic changed every aspect of our lives in 2020, and the economic impact is yet to be fully understood. Such a shock to the system will take a long time to recover from – some sectors worse affected than others – while changes adopted during this unprecedented time could have permanent effects. Confidence in Q2 this year dropped to the lowest levels we have ever seen, and while the bounce back has been strong, confidence levels remain a long way below where they were pre-Covid.
“Before the pandemic, Brexit was front of mind for the majority of business owners. As we enter our second national lockdown closer to the deadline, we are no further along with plans to comply with the changes, minimise any negative impacts and capitalise on the positives. This loss of momentum is a concern. It is vital that all channels for business remain open and clear in our increasingly connected world. The pressure on Government and small business owners to make a success of Brexit in the coming months has intensified.