UK economy shows stability post Brexit vote

Julie Palmer, partner at Begbies Traynor, said UK construction firms appear to be bouncing back after the initial Brexit shock.
Julie Palmer, partner at Begbies Traynor, said UK construction firms appear to be bouncing back after the initial Brexit shock.
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UK businesses across nearly every sector of the economy ​showed positive signs of stability following​ t​he EU referendum​, according to ​insolvency firm ​Begbies Traynor​‘s Red Flag Alert research.

The report, which covered ​the third quarter of​ 2016, monitored the financial health of​ ​UK companies in the three months following the Brexit vote. It showed that levels of “significant” financial distress​ ​among UK businesses fell as the economy showed resilience in the face of Brexit.​

However it should be noted that the report covered the period before the Conservative Party conference where it emerged that Britain could be heading for a “hard Brexit”, losing access to the single market in order to clamp down on immigration.

The research reveals that levels of ​“s​ignificant​“​ distress fell by 6​ per cent​ during the past three months, from 263,517 struggling businesses in ​the second quarter of​ 2016 down to 248,916 companies in ​the third quarter of​ 2016. 92​ per cent​ of these companies, or 229,620​ are SMEs.

​Year-on-year the number of UK businesses suffering ​“s​ignificant​“​ financial distress fell 2​ per cent​ 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, ​e​xecutive ​c​hairman at Begbies Traynor​,​ sa​id​:​ ​“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 ​the third quarter of​ 2016 was within the UK construction sector, where the number of companies experiencing ​“s​ignificant​“​ distress fell by 11​ per cent​ to 28,917.

Julie Palmer, ​p​artner at Begbies Traynor​, said​:​ ​“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.”

​In August ​h​ousebuilder Persimmon cheered shareholders with the news that demand has remained robust following the vote to leave the EU and reservation rates ​we​re up by 17 per cent following the referendum.

The York-based firm said that while​ ​the result of the EU​ ​referendum has created increased economic uncertainty, customer interest since then has been robust with visitor numbers to​ ​its sites​ ​up by 20 per cent.

W​hile the news will be welcomed by the Government, which is keen to jump on any positive Brexit statements​, doubt still remains about the UK’s ability to bounce back once Article 50 is triggered early next year and firms find themselves on a two year countdown before Britain leaves the EU.

​Kathleen Brooks, ​r​esearch ​d​irector ​at ​City Index​, said: ​“​T​he UK releases ​its​ first GDP report encompassing the period after the Brexit vote this week. GDP is expected to come in at 0.4​ per cent​, not bad considering the doom and gloom about the UK economy, some may say.

​“​However, there are a few signs that Brexit is starting to weigh on the UK economy. Business investment is expected to be weak, and we expect another quarter of growth heavily reliant on the consumer. Going forward, we see consumer confidence flagging once Article 50 is triggered at some point early in ​the first quarter​ next year.

​“​As the reality of Brexit hits home, and some multinationals consider whether or not they want to stay in London, this may be the time that consumers pull in the purse strings and 2017 could be tricky for the UK economy.​”

M​s Palmer added: “​Our data did show slower improvements in levels of distress in both London and financial services which could indicate that the brakes are on the London economy, while the rest of the country speeds ahead.

"Given the City of London’s dependence on the financial services sector, which has a great deal to lose from Brexit, and the financial services sectors importance to the UK economy as an earner of approximately £190bn in revenue, an employer of around 1.1 million people and a generator of approximately £60bn in taxes each year, there is clearly a great deal riding on the ultimate terms of the UK’s withdrawal from the EU."

She said that whilst the data has been more positive across the country, her fear is that the sluggish performance of London and the financial services sector could be an early warning of a stalling London economy.

"With many financial services firms having already indicated that jobs in London may have to be moved or axed if access to the single market isn’t negotiated, it is clear that the capital will need to secure the right terms to secure its position as a leading financial hub or potentially face a more severe crash, and only time will tell whether the impact of a ‘hard’ Brexit on the London economy will create a ripple effect across the UK," she said.