South: Region's businesses pessimistic about Brexit impact

Optimism among the region's businesses about the impact of Brexit has dipped to its lowest quarterly level for a year, according to the latest survey by leading audit, tax and consulting firm RSM.

The survey, carried out by YouGov, revealed that sentiment regarding the Brexit impact on company performance over a two-year period dropped to 96 on RSM's Brexit Monitor index. The index measures sentiment between a range of 0-200, where any score above 100 is considered positive, any score below 100 is negative.

However, businesses in the region were more optimistic than the national average which dropped to just 90 on the index in the latest quarter, the lowest ever score.

Viewed over a longer five-year horizon, middle market businesses in the South were neutral about the impact on their performance resulting from Brexit, with sentiment registering 100 on the index, marginally lower than the national average of 103.

Businesses across the region also appeared to be less concerned about the impact of a no deal Brexit than other regions. Only 23% of business respondents in the South said they expected a no deal outcome to be harmful or catastrophic, lower than the national average of 35%. 40% said such an outcome would be neutral, the highest level of any region, while one third (33%) said a no deal Brexit would be favourable or advantageous.

Looking at the national picture, when asked to rank their top Brexit concerns, 38% of businesses surveyed cited concerns around the stability of their workforce, 34% expressed worries around future trading arrangements, tariffs and import/export costs while 21% said they were concerned about the knock-on effect on consumer confidence.

When asked about actions taken to prepare for a no deal Brexit, the most common actions taken included increasing prices, adjusting supply chains and setting aside contingency funds. However, firms reported taking fewer actions to prepare than in the previous quarter.

John Taylor, RSM's regional managing partner for the South said: "Businesses across the South are noticeably more confident about the impact of Brexit than businesses in other regions, with many seeing opportunities rather than threats.

"One interesting finding in this survey was that business leaders appear to be taking fewer steps to prepare themselves for Brexit. A sort of paralysis seems to be setting in while we wait for the political deadlock to break.

"While this is understandable, businesses should use this time wisely and focus on scenario planning so they are ready for any eventuality."

To prepare for Brexit, RSM is advising businesses to cover five key areas:

1. Regulation and compliance - Maintaining compliance with changing regulatory frameworks will be crucial to enabling a business to continue to operate and trade across the EU and non-EU countries as they do now. For example businesses will also need to consider how Brexit might impact their ability to access some tax reliefs and whether insurance provisions will still be appropriate.
2. Financial planning and management - Forecasting the impact of decisions and price shock uncertainty will be crucial to maintaining business continuity. Equally important will be the ability to access finance to fund suitable working capital requirements.
3. Trade - Businesses need to consider the potential impact of increased customs duties, greater regulation causing delays to the movement of goods and services and the effects on cash-flow.
4. People and talent management - Changes to UK immigration policy will have a profound effect and businesses should be thinking about how they will continue to recruit and retain the right people to maintain business continuity and make the most of Brexit opportunities.
5. Business management - Avoiding disruption to core operations and maintaining business continuity will require careful planning and may involve restructuring the business or acquiring additional entities in different jurisdictions. This may also mean outsourcing key areas to increase efficiency and enable a business to focus resources elsewhere.