Brexit uncertainty puts the brake on London businesses

New research reveals that British businesses from Land's End to John o' Groats have shown surprising resilience since the EU Referendum result was announced, with levels of financial distress falling across every region of the UK over the past three months.

However, the research shows that one of the slowest rates of improvement of any region has been within the Capital’s business community, suggesting that London could be experiencing a period of stagnation while businesses await confirmation on whether the UK will choose a soft or hard Brexit, raising concerns around the effect this could have on the Capital’s position as the world’s leading financial centre.

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 London businesses decreased by 4% compared to a national average of 6%, suggesting that businesses in the Capital are being hit hardest by the ongoing uncertainty.

The total number of London-based businesses experiencing ‘Significant’ distress fell from 61,110 in Q2 2016 down to 58,919 during Q3 2016, representing nearly 24% of all UK firms in ‘Significant’ distress.  Whilst the levels of struggling businesses in the North East and Yorkshire decreased by an equivalent percentage to London (4%), the number of businesses in ‘Significant’ financial distress in these regions combined represent just a third of those businesses in London (5,409 in the North East and 15,654 in Yorkshire).

The most positive improvements in financial health during Q3 were seen in the East of England (Q3 2016: 18,128 / Q2 2016: 19,494), the North West (Q3 2016: 24,767 / Q2 2016: 26,566) and Wales (Q3 2016: 7,776 / Q2 2016: 8,354) where levels of ‘Significant’ distress fell by 7% in each region over the same period. 

When analysing the data on a sector basis, the UK’s financial services industry, much of which is based in London, saw a minimal improvement in financial distress of only 2% (Q3 2016: 5,754 / Q2 2016: 5,848), compared to a 6% fall across all sectors.  This sluggish performance calls into question how the City of London will be impacted by the ongoing Brexit negotiations and whether the Capital can retain its pole position on the international stage once an exit deal is agreed.

Julie Palmer, Partner at Begbies Traynor, says:

“Our data shows that the brakes are being gently applied to 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 £190 billion in revenue, an employer of c1.1 million people and a generator of approximately £60 billion in taxes each year, there is clearly a great deal riding on the ultimate terms of the UK’s withdrawal from the EU.

“Our fear is that this sluggish performance, of both 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.”