LONDON (Alliance News) - Businesses in the UK are in a strong position to navigate through the turmoil caused by the country's vote to leave the European Union, but at least six months of challenges lie ahead, according to a report from business recovery firm Begbies Traynor Group PLC.
Begbies' Red Flag Alert research for the second quarter of 2016, which monitors the financial health of companies in the UK, showed levels of "Significant" financial distress amongst companies in the UK fell for the first time since the third quarter of 2016, amid tentative signs of stability emerging in the British economy ahead of the Brexit vote.
Begbies found the number of companies in "Significant" distress declined 4.0% in the second quarter of 2016 compared to the first, with 93% of those firms categorised as small and medium-sized businesses.
The sector most exposed to economic volatility, Begbies said, remains the UK construction and real estate segment. However the firm found overall levels of financial distress fell in all sectors.
Begbies said the comments of former Chancellor of the Exchequer George Osborne in the wake of the Brexit result that the UK economy is "about as strong as it could be to confront the challenge our country now faces" appear true, based on its research.
However, the firm said the improvements seen in the second quarter will be reversed, for the next six months at least, due to the immediate negative impact the Brexit result has had on British businesses.
"Although more than half the country voted for a Brexit, the result has undoubtedly caused a spike in uncertainty while raising concerns over job security, contributing to weaker consumer confidence and the deferral of investment plans, all of which is likely to impact spending and business growth in the short term," said Ric Traynor, Begbies' executive chairman.
"The Bank of England's commitment to maintaining interest rates at a record low, as well as the government's inference that they might cut corporation tax to less than 15 percent, could help to stabilise the economy and consumer sentiment over time. However we expect the business environment to worsen over the next six months, at least, before we settle into the 'new normal'," Traynor added.
"Assuming Prime Minister Theresa May and her new Cabinet do invoke Article 50 as planned, the process of exiting the EU, while at the same time agreeing new trade agreements, is likely to be a long and drawn out affair, so businesses should prepare themselves for the long haul," he said.
By Sam Unsted; samunsted@alliancenews.com; @SamUAtAlliance
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Begbies (BEG)