UK businesses remain resilient in the face of Brexit

UK businesses across nearly every sector of the economy were showing positive signs of stability following the EU Referendum, new research from Begbies Traynor, the UK’s leading independent business recovery firm, reveals.

According to Begbies Traynor's Red Flag Alert research for Q3 2016, which monitors the financial health of UK companies, in the three months following the EU Referendum, levels of ‘Significant’ financial distress among UK businesses fell as the economy showed resilience in the face of Brexit.

The research reveals that levels of ‘Significant’ distress fell by 6% during the past three months, from 263,517 struggling businesses in Q2 2016 down to 248,916 companies in Q3 2016. 92% of these companies (S3 2016: 229,620) were SMEs.

Meanwhile, year-on-year the number of UK businesses suffering ‘Significant’ financial distress fell 2% across the economy as a whole. This new data chimes with recent ONS data which reported that Brexit has had no major effect on the UK economy thus far.

Ric Traynor, Executive Chairman at Begbies Traynor says:

“Overall, the UK economy appears to be in a stronger position than expected following the EU Referendum result. While we wait to see whether the Government opts for a ‘hard’ or ‘soft’ Brexit strategy, businesses at least appear to be better placed to tackle any new challenges on the horizon ahead of the Government’s imminent negotiations.

 “However, given that the details of the future Brexit deal are as yet unknown, it is still too early to tell what longer term impact the ‘Leave’ decision might have on the UK economy. Clearly though, the stronger the UK economy becomes pre-Brexit, the better it will be able to withstand any post-Brexit shocks.”

According to Begbies Traynor’s research, the most marked improvement in financial health during Q3 2016 was within the UK construction sector, where the number of companies experiencing ‘Significant’ distress fell by 11% to 28,917 (Q2 2016: 32,311 companies).

The findings echo the recent construction PMI, which was 52.3 in September, up from 49.2 in August, indicating that the sector is expanding.

 Julie Palmer, Partner at Begbies Traynor says:

“Our data shows that UK construction firms appear to be bouncing back after the initial Brexit shock, when in July construction activity initially shrank at its fastest pace since 2009. The good news for this sector is that these businesses can also expect a further boost following recent policy announcements including the £3 billion Home Builders Fund, plans to accelerate construction on public land and the unlocking of brownfield sites across the country.

 “All eyes now turn to the upcoming Autumn Statement where further announcements are expected in support of SME developers and increased infrastructure spending. If implemented, these measures should put UK construction firms in an even better positioned to survive any potential fallout from the Brexit negotiations.”  

Begbies Traynor’s research also found that professional services firms had the second most improved levels of ‘Significant’ financial distress during Q3 2016, falling by 10% to 11,745 companies (Q2 2016: 13,031 companies).

Julie Palmer, Partner at Begbies Traynor says:

“Professional services firms have been in high demand following the Referendum result, contributing to lower financial distress across the sector. Law firms and management consultancies are benefitting most thanks to an influx of new projects from clients looking for help in navigating the current Brexit uncertainty and the potential legislative changes that may come into force once the UK leaves the EU.

 “However, challenges still remain for the sector over the long term, as any negative impact on the UK economy following a Brexit deal could dampen future transactional activity – one of the most lucrative sources of income for many large professional services firms.”