How Brexit Could Affect Startups in the UK

How Brexit Could Affect Startups in the UK

How Brexit Could Affect Startups in the UK


 

2016 was a good year for startups in Britain with news outlets reporting that at least 80 new businesses were being established every hour. These numbers show that local and foreign investors were confident in the British economy and felt that it would remain strong for years to come. After the 23rd June referendum vote to leave the European Union, market sentiments changed from bullish to bearish. Brexit has been further complicated by the fact that economists foresee the UK going for a “Hard Brexit,” which would mean complete severance from the EU’s free market.

Relocation and closure of businesses

Some established entrepreneurs have already felt the immediate aftermath of Brexit. Restauranteur Jamie Oliver closed 6 of his Italian restaurants in the UK following tough trading and other financial pressures after Brexit. He said that the prices of imported ingredients from Italy have gone up because of the declining value of the sterling against the euro. Oliver closed his restaurants in Aberdeen, Exeter, Cheltenham, Richmond, Tunbridge Wells and Ludgate Hill by the first quarter of 2017. The chef stated that he would focus on international launches instead.

Leaving the UK to set up international businesses is a trend that is also affecting British startups. The Independent reported that a month after the referendum at least 5 other London-based startups moved out of the country and relocated to Berlin, while hundreds more have considered relocating. The rising cost of living in the UK has made establishing new businesses harder and more costly. German senator Cornelia Yzer laid out the attraction of moving businesses saying: “Berlin is the third-largest market for offices in Europe and rents are fair: a commercial real estate from http://www.calrespainting.com/services/stucco-coatings/ that works out at about a fifth of the cost of office space in London.” In addition, 40% of U.S. companies with UK offices have considered relocating to EU member states after Brexit.

At the 2016 Silicon Beach Festival in the U.S., officials questioned the UK’s ability to host startups. Forbes writer Rebecca Fannin says that there is little doubt that the UK will need to do more to augment its position with startups and venture capitalists wondering where to invest and set up their business.

Factors that affect startups in the UK

While Brexit is quite possibly the biggest factor that affects UK startups right now, there are other economic events that continuously affect all businesses. Based on the economic calendar on FXCM, the Goods Trade Balance also affects merchants in general. The Good Trade Balance released by the National Statistics is a balance between exported and imported goods. A positive value reflects a trade surplus. Conversely, a negative value illustrates trade deficit. Startups are affected by Goods Trade Balance because it generates volatility for the sterling.

The Consumer Price Index (CPI), which is also released by the National Statistics, will also have an impact on startups. After all, the CPI is being used to gauge changes in purchasing trends, which is affected by inflation. Right now, the volatility reading for the sterling is high, which indicates that higher inflation may happen after the final Brexit vote.

What the future holds for startups

The full effects of Brexit are still unclear, but there are signs that UK startups are adamant about surviving and overcoming the challenges. In September Wired listed the hottest startups in London noting that despite waiting for the result of the Brexit negotiations, recent endorsements from tech giants demonstrated that London and the UK is still an attractive location for business. There is no doubt that startup companies are looking at a difficult future, but it’s also clear that innovation and hard work are being prioritised by UK-based entrepreneurs. Most startups are hopeful and steadfast in their resolve to stay operating successfully despite the challenges and uncertainties of Brexit.