Sep 24, 2018 3 min read

How Brexit Affects Startups in the UK

Britain’s widely controversial move to leave the European Union, also known as Brexit, has caused a lot of changes within the UK. In fact, this political move is expected to shape both the present and future of Britain in the economic, political, and social fronts. So how does Brexit and the latest updates surrounding it affect businesses in the UK? This article will enlighten you on the ways Brexit is affecting UK startups.

Relocations and Closures of Businesses
The effect of Brexit was immediate for startups. In 2016, the year prior to Brexit, it was estimated that up to 80 startups were opening in the UK annually. This number has sharply declined since the UK officially made its intentions to leave the EU known. In fact, even established businesses are feeling the hit from Brexit. With the rise of prices in imported items from Europe and the weakening value of the sterling, a lot of companies are actually deciding to just close shop to cut their losses.
A secondary trend that came out almost immediately after the Brexit referendum is the rise of UK startups venturing overseas. Many British startups have already gambled with setting up shop on other EU countries such as Germany. This trend was caused by the continuing rise in the cost of living in the UK, coupled by the lower cost of establishing a business elsewhere. It is expected that this trend will continue in the coming years, as even foreign companies are considering iii their UK offices to other EU states.

Economic Uncertainty
One factor that affects people who are considering to open startups is the general uncertainty of the economy. There is the observed downward trend of the value of the sterling, the continued debates within the British parliament, and the fear of sanctions that may be imposed by the European Union and its member nations.
With these issues, this uncertainty paralyzes many entrepreneurs. This is now even more evident, given that there’s a possibility that no agreement can be struck between the British and the EU for the impending exit. These uncertainties can have a powerful effect in discouraging would-be startups from opening shop.

The Prospect of a Hard Brexit
As mentioned earlier, the UK and the EU have not yet established any form of agreement that can take place post-Brexit. If an agreement is not established by the time the UK leaves the EU on 2019, a complete separation, called by analysts as the “hard Brexit”, will take place. In such a scenario, the UK will be completely separated from the rest of the countries that are members of the EU. If this happens, massive changes in UK’s immigration and international trade policies are expected to follow, which can adversely affect potential startups.
If a “hard Brexit” takes place, it is expected that trade and shipment costs between British entities and their EU counterparts will increase dramatically. Also, because of the expected changes in immigration policies, exporting and importing manpower to and from Britain would become more complicated. These potential changes are, in fact, already affecting established enterprises, and will also be a major consideration for those thinking about opening startups in the UK.

EU Countries Posturing
While there are major uncertainties in the UK’s economic climate, other countries are trying to take advantage of it. It has been already mentioned earlier that startups are seeking new grounds in other EU countries, and these countries don’t make it a secret that they welcome startups.
One example of a country trying to make itself more attractive to startups is France. The country’s “La French Tech” campaign, led by none other than French digital minister Axelle Lemaire, encourages entrepreneurs to establish their tech businesses in France. Other EU countries such as Germany are starting similar programs too.
EU countries know that with the impending Brexit, they can potentially get startups that can boost their respective economies. This is why they are not shy about trying to win over these potential new businesses, offering start-ups with plenty of opportunities which might be growing scarce in their home turf.

Positivity Still Remains
In spite of the uncertainties brought about by Brexit, some start-ups remain hopeful that they will still find success despite the uncertain economic climate. In spite of all the worries and threats, the UK has seen a small spike in people opening startups. The entrepreneurial spirit in the UK remains strong, and this is seen as a positive sign that in spite of Brexit, there are still entrepreneurs willing to invest in the local economy.