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Some Mid-Market Companies are Decreasing Investments in Great Britain Following Brexit Vote

U.S. mid-market companies may already be reducing their investments in the UK in anticipation of red tape and rising costs when the country exits the European Union.

gettyimages-535459060-compressorThe National Center for the Middle Market (NCMM) surveyed 569 mid-market firms and found a nearly 50/50 split of businesses saying they did or didn’t anticipate an impact on their operations. NCMM Executive Director Thomas Stewart said while the data doesn’t appear to be “earth-shaking” for the middle market as a whole, it is important to note that 13% of these firms are predicting an “extremely significant” impact on their businesses. A quarter of U.S. mid-market companies said they would decrease business investments in Great Britain, while a quarter also said they would reduce their purchases from and sales to the UK.

While final details of how Brexit will take place will still be worked out over the next couple of years, it is expected that the UK will require its own shipping procedures and no longer have cross-border efficiencies. Middle-market executives have expressed concerns about the red tape and fear it could become an even bigger problem should other European nations move to leave the EU.

“The uncertain complexities Brexit introduces to international regulation are clearly troubling American exporters and importers,” said Stewart.

“The uncertain complexities Brexit introduces to international regulation are clearly troubling American exporters and importers.”

The Wall Street Journal noted that there are already signs that companies are slashing investments after Brexit. Money being held in money market funds was up almost 20% in September since the start of the year, according to Crane Data, LLC, and most of the increase happened after the Brexit vote. Around two thirds of investments in sterling money market funds are corporations it could mean that, as economists hard warned, many are postponing capital investments due to Brexit uncertainty. “You could well see those balances increase further from here,” said Andrew Dickinson, head of money market and short duration funds at Aberdeen Asset Management.

Since the vote happened, economists have argued that it would lead business investment in Britain to fall, and hamper economic growth in the second half of the year. British Chamber of Commerce estimates are that investments will fall by 2.2% in 2016 and 3.4% in 2017.

Meanwhile, Chief Executive reported in July that the impact of Brexit on U.S. companies could depend on the sector they are in. It is expected to take up to two years for the EU to draft a formal exit plan for the withdrawal of Great Britain. Many U.S. companies, such as Penske Automotive Group, Molson Coors and PPL Corp., have downplayed the impacts they feel Brexit would have. But others, especially companies in the financial industry or those that have big markets in Europe or operate subsidiaries in Great Britain, could have less incentive to operate there in the future.

Yet the NCMM says there still could be a silver lining for the U.S. economy. Twenty-eight percent of firms surveyed predicted decreases in UK business investments with an almost equal number predicting increases in U.S. business investments. Stewart says it indicates that some U.S. companies are investing money here at home that they otherwise would have invested in the UK. “If so, middle-market company responses to Brexit will hurt the United Kingdom and help the United States,” said Stewart.


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