Brexit Monitor Results - Business beyond Covid-19 May 2020
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Brexit Monitor Results Business beyond Covid-19 May 2020 As the global health pandemic continues, what news of business sentiment surrounding the UK's future trading prospects post-Brexit?
2 Brexit Monitor Results
Brexit Monitor
How is the middle market faring as the UK battles through one of
the most uncertain and volatile economic, societal and operating
environments since the global economic crisis of 2008/09?
RSM’s Brexit Monitor offers a snapshot of business sentiment as
the UK prepares to negotiate a deal with the EU and against the
backdrop of the challenges presented by the Covid-19 pandemic.
Methodology
The survey carried out by YouGov is based on 322 interviews with C-suite
respondents from middle market firms (with turnovers between £30m and £300m)
across manufacturing (50), financial services (57), technology, media and telecoms
(TMT) (51), construction (50), consumer (58) and other markets (56).
There were at least 30 respondents in each region: London, South, Central,
North East and Yorkshire, North West and Scotland.
Sectors have been weighted to be equal within each region so as to ensure that
regional results are not being driven by any one sector in particular. Construction
figures for Wave 7 have been weighted to be equal to the average turnover sizes
reported by all respondents.
Fieldwork was completed between 5 March 2020 and 23 March 2020.
Chart percentages may exceed 100 per cent due to rounding.
Key
MAN Manufacturing LDN London
FIN Financial services STH South
TMT Technology, media and telecoms CEN Central
CON Construction NW North West
CSM Consumer NEY North East and Yorkshire
SCO Scotland33 Brexit Monitor Results
Heading one
Summary
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that most middle
market leaders became more optimistic, albeit pre-Covid-19 lockdown, about
the impact of Brexit on their business and the UK economy, especially over the
longer term.
However, the fact that the survey took place just prior to the UK lock down
strongly
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A third of firms have scaled back on recruitment in
preparation for a no deal scenario and a similar number have
put IT projects on hold.
40 per cent of financial services and TMT companies believe
that the proposed points-based system of immigration will
make it easier to recruit people.4 Brexit Monitor Results
Overview
Q What effect do you believe the UK exiting the EU will have on your
company and the UK economy over the next two years?
Strong positive
effect Brexit Monitor – INDEX by All sectors (over next 2 years)
200 Calculation: strong positive = 200, weak positive = 150, no effect =
100, weak negative = 50, strong negative = 0
113
105 108 104
98 99
No effect 102 107 90
100
100 94 95
93
90
My Company UK Economy
Strong negative
effect Q3 Q4 Q1 Q2 Q3 Q1 Q2
0
2017 2017 2018 2018 2018 2019 2020
Sentiment on the impact of exiting the EU has
risen since the last survey into positive territory,
and for the first time since Q2 2018. The tracking
index on the UK economy rose to 104 points,
“ In March businesses broadly felt emboldened
by the results of the December general election,
but this ‘Boris’ bounce in sentiment proved to
be a brief interlude. The full economic effects
the highest for two years. The company index of Covid-19 will clearly alter how mid-market
increased to 93 points but still remains negative
and generally lower than when this survey began.
businesses view their prospects, and that of the
economy, in the short to medium term.
“
– Simon Hart
RSM Partner, International5 Brexit Monitor Results
Q What impact do you think the UK exiting the EU will have
on the UK economy in the next two and five years?
Two years Five years
+3% +6%
+28% +26%
-2% -13%
+21% +30%
+28% +26%
-9% +10%
Strong negative -20% Weak negative -19% to -6 No effect -5 to 5%
Weak positive +6 to +19% Strong positive +20%
Over the short term most regions are positive Over a five-year period, London believes that
about the impact exiting the EU will have on they will see a positive impact. The only region to
the economy. Only Central and London regions maintain a negative sentiment in the long term is
continue to feel pessimistic about having left. the Central region.6 Brexit Monitor Results
Q What effect do you believe the UK exiting the European
Union will have on your company in the next two years?
Sentiment since 2017 over impact of Brexit over two years by sector
140
130
120
110
100
90
80
70
Aug/Sept 2017 Nov/Dec 2017 Feb/Mar 2018 May/June 2018 Aug/Sept 2018 Jan/Feb 2019 Mar-2020
MAN FIN TMT CON CSM
Despite a points increase since the last survey,
the TMT sector remains the most pessimistic
having previously been one of the more
optimistic of the sectors. The manufacturing
“ The way the tech and manufacturing sectors
have seen their prospects evolve since our
survey began really stand out. When we
started this exercise nearly three years ago,
sector has followed a similar pattern. In contrast, both sectors stood out as the UK’s most
the construction industry has seen a big fall optimistic areas of industry. How times change.
in confidence since the last survey but still Both sectors will now be hoping for a change in
remains the most positive sector, along with
financial services.
fortunes, not just economically but in terms of
favourable policy as the lockdown eases.
“
– Simon Hart
RSM Partner, International7 Brexit Monitor Results
Q What effect do you believe the UK exiting the European
Union will have on your company in the next two years?
Sentiment since 2017 over impact of Brexit over two years by region
140
130
120
110
100
90
80
70
Aug/Sept 2017 Nov/Dec 2017 Feb/Mar 2018 May/June 2018 Aug/Sept 2018 Jan/Feb 2019 Mar-2020
LDN STH CEN NW NEY SCO
Across the country opinion was split on how leaving the EU would impact businesses. The Southern
region has gone from among the most pessimistic when the survey began to the most optimistic and
along with the North West, the only regions to be net positive overall. Since the last survey, optimism
has grown the most in the North East and Yorkshire region. Scotland remains the least optimistic
region after the largest fall in the last 12 months.8 Brexit Monitor Results
Q What effect do you believe the UK exiting the European
Union will have on the UK’s future relations with each of the
following over the next two years?
Impact on international relations with other nations
European Union
United States
China
Commonwealth
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Strong negative Weak negative No effect Weak positive Strong positive
45 per cent of businesses feel pessimistic about
future relations with the EU. In contrast there
is a shift to positivity over future relations with
the US and the Commonwealth.
“ We may well see another shift in sentiment
towards each of these trading groups in the
short term, not least due to the fast evolving
dynamics and challenges presented by the
global health pandemic. Negotiations with
the US for a future FTA also kicked off in May
– a lot’s at stake for both sides, and these
6-weekly meetings will fuel differing views on
future prospects.
“
– Simon Hart
RSM Partner, International9 Brexit Monitor Results
Q How well is the government representing the views of the
middle market in their negotiations with the European Union?
Sector Region
MAN LDN
FIN STH
TMT CEN
CON NW
CSM NEY
SCO
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
NET well NET poorly
The manufacturing sector does not feel that they are being well represented by the government.
However, the construction, TMT, and financial services businesses feel positive about their
representation. As do businesses in the North West, North East and Yorkshire, and the Southern
regions. Scotland in contrast continues to feel that it is not being well represented.10 Brexit Monitor Results
No deal scenario
Q What impact, if any, would the UK’s failure to negotiate a trade deal
have on your business’s expected turnover?
Overall Financial Services
26%
30% 32% 30% 30%
36%
35% 35%
26% 33% 32% 41%
Wave 7 Wave 8 Wave 7 Wave 8
Disadvantage Neutral Advantage Disadvantage Neutral Advantage
Construction Manufacturing
18%
26% 25%
30%
42%
46% 47%
16%
61%
31% 28%
22%
Wave 7 Wave 8 Wave 7 Wave 8
Disadvantage Neutral Advantage Disadvantage Neutral Advantage
Consumer TMT
22%
26% 30% 30%
36% 34%
41%
44%
29%
29% 34% 32%
Wave 7 Wave 8 Wave 7 Wave 8
Disadvantage Neutral Advantage Disadvantage Neutral Advantage
Overall, there has been no change to the percentage of firms 26 per cent. However, they continue to be the only sector
who see no deal as a disadvantage (35 per cent in both waves) to see a no deal as an advantage.
but those seeing it as an advantage overall has decreased
Consumer businesses have shifted overall from seeing no
from 36 per cent to 30 per cent in the last 12 months.
deal as an advantage to a negative. Previously the feeling
Construction firms are more negative in this wave than in was 41 per cent positive and 26 per cent negative. Now 44
previous waves – those who see the advantage of a no per cent of the sector see it as a negative and only 22 per
deal are down from 61 per cent to 42 per cent and those cent feel positive.
who see it as a disadvantage are up from 18 per cent to11 Brexit Monitor Results
Q What impact, if any, would the UK’s failure to negotiate a trade deal
have on your business’s expected turnover?
Central North West
27% 29%
31% 29% 30% 30%
38%
48%
19%
25% 38% 41%
Wave 7 Wave 8 Wave 7 Wave 8
Disadvantage Neutral Advantage Disadvantage Neutral Advantage
London Scotland
15%
27% 27%
42%
39%
44% 47%
45%
38%
28% 25%
16%
Wave 7 Wave 8 Wave 7 Wave 8
Disadvantage Neutral Advantage Disadvantage Neutral Advantage
North East and Yorkshire Southern
24% 23% 20%
30%
33% 34%
38%
46%
32% 44%
29% 40%
Wave 7 Wave 8 Wave 7 Wave 8
Disadvantage Neutral Advantage Disadvantage Neutral Advantage
The Central region has seen a big shift in sentiment. In contrast the North East and Yorkshire region is more
Previously 48 per cent thought that a no deal Brexit would positive now than in previous waves, with a drop in those
be an advantage, but this has dropped down to 31 per cent. seeing no deal as a disadvantage down from 46 per cent to
30 per cent and those seeing an advantage growing from 24
London has also seen a big drop in those seeing no deal as
per cent to 38 per cent.
an advantage, down from 42 per cent to 27 per cent. The
majority however have swung to neutral.12 Brexit Monitor Results
No deal scenario
Q Have you had to scale back or put on hold any other aspects of your
business in preparation for a ‘No Deal’ scenario?
Aspects of business put on hold in preparation for no deal
60%
50%
40%
30%
20%
10%
0%
Infrastructure IT projects Recruitment Product Mergers and Remuneration Employee
investment development acquisitions for employees engagement
activities
Manufacturing Financial services TMT Construction Consumer ALL
Almost three in ten businesses have scaled back
on areas of their business in preparation for a no
deal scenario with IT projects (32 per cent) and
recruitment (32 per cent) being the most likely
“ Middle market firms had done much to scale back
already, but a more extreme and protracted form
of contraction and consolidation is likely in the
short term. How passive, conservative or brave
areas impacted. firms choose to be in the medium to long term
will depend not only on the sectors in which they
Half of manufacturing firms have put product operate, but on their agility in the way that they
prepare for future change. Just how businesses
development on hold and over half of TMT
look to reactivate and reimagine their operating
businesses (51 per cent) have scaled back on environments post-lockdown, whilst also
IT projects. Construction and manufacturing
firms are most likely to have scaled back on
considering, strategizing and investing in the
‘new normal’ will be crucial.
“
infrastructure investment (39 per cent).
– Simon Hart
RSM Partner, International13 Brexit Monitor Results
Five-point plan
Our five-point plan considers the far-reaching impact for many businesses,
bringing risk through uncertainty, but also creating new opportunities.
Regulation and compliance Financial planning and forecasting
Maintaining compliance Forecasting the impact of
with changing regulatory decisions and price shock
frameworks will be crucial to uncertainty will be crucial to
enabling a business to continue maintaining business continuity.
to operate and trade across the
EU and non-EU countries as
they do now.
Trade People and talent management
Businesses need to consider the Changes to UK immigration policy
potential impact of increased will have a profound effect and
customs duties, greater businesses should be thinking
regulation causing delays to about how they will continue to
the movement of goods and recruit and retain the right people
services, and the effects on to maintain business continuity
cash-flow. and make the most of Brexit
opportunities.
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.14 Brexit Monitor Results
Q Which of the following external shocks or events, if any, do you think
pose the greatest potential risk to your business?
Wave 7 Wave 8
21% 17% 25% 20%
Global Data Pandemics UK failure to
recession breaches negotiate
a deal
15% 15% 18% 15%
Foreign currency Depreciation Global Foreign currency
fluctuations in value of £ recession fluctuations
15% 15%
Fluctuation in Chinese
commodity economic
prices downturn
Unsurprisingly, pandemics appear at the top of deal as their biggest concern. A global recession
the list but still only a quarter of businesses feel appeared lower down the list of concerns in
that this was the biggest risk in the future. It this wave, but the concern around a Chinese
must be noted that the full impact of Covid-19 economic downturn has increased.
had perhaps not yet been fully realised by the
majority of respondents who will likely have Other big concerns in the last wave around data/
completed the survey just prior to the UK cyber, commodity prices and terrorism are less of
lockdown. One in five businesses note the an issue this quarter.
UK government’s failure to negotiate a trade15 Brexit Monitor Results
Q What actions, if any, has your business taken since the
general election in December 2019?
Actions taken since the general election
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
non-EU markets
Expanded / looking to expand into
employment legislation
supplier contracts
workers’ status
customer contracts
technical notices
subsidiaries or branches
export duties with the EU
operations outside UK
and efficiency
Lobbied the government
Increased local recruitment
Reviewed immigration and
Reviewed / adjusted EU
Reviewed existing EU
Reviewed / adjusted EU
Reviewed government’s
Established or establishing EU
Adjusted for potential import /
Moved / plan on moving
Measures to increase productivity
Manufacturing Financial services TMT Construction Consumer ALL
Following the general election in December, the Overall, more businesses are likely to have
construction sector has been far more active expanded, or looked to expand, into non-EU
than any other sector, with almost half of markets. The consumer sector is particularly
businesses in the industry having taken time to likely to have taken this option with 40 per cent
review immigration and employment legislation, of businesses having taken action in this area.
existing EU workers’ status, and EU supplier
contracts. The construction sector is also the
most likely to have established EU subsidiaries or
branches in the last few months.16 Brexit Monitor Results
Q What actions, if any, has your business taken since the UK departure
from the European Union on 31st January 2020?
Actions taken since the 31st January
60%
50%
40%
30%
20%
10%
0%
non-EU markets
employment legislation
workers’ status
supplier contracts
customer contracts
duties with the EU
subsidiaries or branches
operations outside UK
technical notices
Expanded / looking to expand into
Lobbied the government
Increased local recruitment
Reviewed immigration and
Reviewed existing EU
Reviewed / adjusted EU
Reviewed / adjusted EU
Adjusted for potential import / export
Established or establishing EU
Moved / plan on moving
Reviewed government’s
and efficiency
Measures to increase productivity
Manufacturing Financial services TMT Construction Consumer ALL
Manufacturing businesses are most likely to have The construction sector is most likely to have
acted since the UK left the European Union at taken measures to increase productivity and
the end of January. 53 per cent have reviewed efficiency in the last two months.
immigration and employment legislation and 48
per cent have expanded or looked to expand into
non-EU markets.17 Brexit Monitor Results
Q Thinking about the UK government’s proposed points-based system,
which of the following views, if any, come closest to yours?
What is your view on the proposed points-based system?
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Overall Manufacturing Financial services TMT Construction Consumer
The new system will make it more difficult for my organisation to hire the people we need
The new system will have no impact on my organisation’s ability to hire
The new system will make it easier for my organisation to hire people we need
Overall, the feeling on the government’s proposed Across the sectors, 39 per cent of TMT and 36
points-based system is split, with 29 per cent per cent of financial services businesses believe
believing it will make hiring easier, 24 per cent the new system would make it easier for them
believing it will make hiring more difficult and 40 to hire. In contrast, 31 per cent of consumer
per cent being neutral. businesses and 28 per cent of manufacturing
business think it will make hiring harder.18 Brexit Monitor Results
Q Which of the following, if any, do you feel are the most detrimental
effects of being unable to retain staff?
42% 44%
Hiring costs Training costs
37%
Reputational
cost
46% 41%
Productivity Morale cost
costs19 Brexit Monitor Results Contact us Simon Hart Lead Brexit partner T: 0203 201 8000 simon.hart@rsmuk.com Ed Dewar Senior PR Manager T: 0203 201 8145 ed.dewar@rsmuk.com or pressoffice@rsmuk.com Sarah Plastow NIS Research Manager T +44 (0)20 8648 8048 sarah.plastow@rsmuk.com rsmuk.com The UK group of companies and LLPs trading as RSM is a member of the RSM network. RSM is the trading name used by the members of the RSM network. Each member of the RSM network is an independent accounting and consulting firm each of which practises in its own right. The RSM network is not itself a separate legal entity of any description in any jurisdiction. The RSM network is administered by RSM International Limited, a company registered in England and Wales (company number 4040598) whose registered office is at 50 Cannon Street, London EC4N 6JJ. The brand and trademark RSM and other intellectual property rights used by members of the network are owned by RSM International Association, an association governed by article 60 et seq of the Civil Code of Switzerland whose seat is in Zug. RSM Corporate Finance LLP, RSM Restructuring Advisory LLP, RSM Risk Assurance Services LLP, RSM Tax and Advisory Services LLP, RSM UK Audit LLP, RSM UK Consulting LLP, RSM Employer Services Limited, RSM Northern Ireland (UK) Limited and RSM UK Tax and Accounting Limited are not authorised under the Financial Services and Markets Act 2000 but we are able in certain circumstances to offer a limited range of investment services because we are members of the Institute of Chartered Accountants in England and Wales. We can provide these investment services if they are an incidental part of the professional services we have been engaged to provide. RSM Legal LLP is authorised and regulated by the Solicitors Regulation Authority, reference number 626317, to undertake reserved and non- reserved legal activities. It is not authorised under the Financial Services and Markets Act 2000 but is able in certain circumstances to offer a limited range of investment services because it is authorised and regulated by the Solicitors Regulation Authority and may provide investment services if they are an incidental part of the professional services that it has been engaged to provide. Baker Tilly Creditor Services LLP is authorised and regulated by the Financial Conduct Authority for credit-related regulated activities. RSM & Co (UK) Limited is authorised and regulated by the Financial Conduct Authority to conduct a range of investment business activities. Whilst every effort has been made to ensure accuracy, information contained in this communication may not be comprehensive and recipients should not act upon it without seeking professional advice. © 2019 RSM UK Group LLP, all rights reserved. 7358
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