Just over a month ago, the UK voted to leave the European Union. This has led to the most significant upset of the British political landscape since the Second World War and has shifted both the economy and the business community into an uncomfortable holding pattern.

The medium and longer term outlook for businesses, both small and large, is difficult to assess at the moment - we will have to wait until August for that insight to reach us. Our thoughts however are that while the short term landscape for UK business contains significant pitfalls, there will also be opportunities, mainly through investment and funding channels.

Investment

Investment, or the lack thereof, is expected to be the primary pain point of the post-recession landscape. We know all too well that ‘businesses crave certainty' and in the uncertain post referendum landscape, companies as diverse as Vodafone, Siemens, Honda and Toyota have all reportedly cancelled investment into the UK.

Their reasoning is obvious; it is prudent business practice to invest only when certain you can get the returns you want.

Of course, the fall in the value of the pound has made investing into the UK cheaper. At the middle of July, sterling was about 9% down month-on-month against the euro and 19% down year on year. It was 11% down on the month and 18% down on the year against the dollar.1

This fall means that legacy assets such as power stations, shopping centres and airports may be snapped up by those looking for a quick bargain. Amidst the doom and gloom, the UK remains a good place to invest of course; the workforce is well educated, English remains a global language and English law is still considered the most important legal framework.

Funding

Comparisons between the Global Financial Crisis and the UK economy post-Brexit are unhelpful; there are very few people out there who believe with any credibility that any downturn seen from the vote result would be in any way as damaging as the credit crisis. What could easily become an issue could be a similar cessation in corporate borrowing.

Mark Carney's Bank of England is expected to flex the muscles of its newest counter-cyclical capital buffer and lower the levels of capital banks are forced to hold in their coffers. This should allow banks to increase the volume of loans they're extending to the private sector as they look to put the capital to work which, in turn, supports the credit markets and small businesses reliant on bank funding.

Increasing the amount of money available for businesses to borrow is all well and good but tantamount to pushing on a string; if the demand for loans simply isn't there, then all the money in the world is going to do little to increase demand.

In times of political and economic uncertainty, appetite for credit among SMEs falls through the floor, and understandably so. Business loans data released over the next three months will be keenly watched for a gauge on this.

We expect the Bank of England to take steps to increase the amount and decrease the cost of credit in the coming months, as soon as the August ‘Super Thursday' policy meeting on the 4th

To download the full copy of Global Ambitions, click here: