Brexit risks make it harder to think beyond the top line

With Britain facing the cliff edge of Brexit next year, the question facing the country’s fast growing businesses is whether they can keep investing in innovation and sustainability programmes before the UK’s future relationship with a major trading partner is resolved. 

Whatever their political leanings, executives at the speedy end of the corporate sector seem to be aligned in one respect: the uncertainty and lack of regard for business in the Brexit negotiations has been unsettling. 

This is the message from some of the executives whose businesses are included in the FT’s inaugural Future 100 UK index. The list comprises companies making a positive social or environmental impact, addressing diversity, disrupting their sector or simply showing consistently fast revenue growth.

This list, compiled with research company Statista, shows the UK’s corporate climate is still supportive of such initiatives. But executives are calling for careful handling of policies over immigration and trade after Brexit. There are worries about how much government time and resources are being sucked into the departure from the EU.

This concern is especially common among the smaller, fast growing companies competing for digital specialist talent against larger tech groups, such as Facebook and Google. 

Many companies on the list value investment in technology that leads to disruption, but there are signs that businesses as a whole are holding off making investments.

Companies are already delaying important decisions, according to the UK’s Office for Budget Responsibility, which cited this last November as a reason for a slowdown in its economic growth forecasts for 2017 and 2018. 

Areas such as diversity and environmental, social and governance (ESG) policy are in danger of being sidelined in such an environment, even if the commitment to investing in innovation is now well established. 

One FT Future 100 UK company recognised by judges in the ESG category is Lily’s Kitchen, which makes gourmet pet food. Unlike its large multinational competitors it sends the meals in sustainable packaging, rather than plastic pouches.

“We could double our turnover if we put our food in pouches,” says Henrietta Morrison, founder of the London-based business, before explaining why such plastic packaging is so bad for the environment, as it tends to end up in landfill.

But businesses are finding it harder to focus on ESG, she says, and “to think in an expansive way when it is so uncertain”, referring to the outcome of Brexit. “It is super distracting when you want to think about growth, innovation and change.”

Ms Morrison adds that it is also disappointing that the government has not done more to ensure that the business sector “is at the heart of Brexit considerations”.

“We are looking for a happy outcome,” says Edward Griffith, co-founder of London-based online marketplace LoveCrafts, which joins the FT Future 100 UK on the basis of its consistent revenue growth. Mr Griffith worries about any impediment to the supply of goods when serving German operations from its UK warehouse, should harder borders become established. 

“Uncertainty is the problem as we have to prepare for any one of six outcomes. The worry is that this will hurt the business’s competitiveness.”

Mr Griffith says the climate for start-ups remains strong in the UK, pointing to government support for research and development through tax credits. “London remains a great place to run a global digital business and raise capital.”

Businesses are finding it harder to focus on ESG and think in an expansive way when it is so uncertain

But the worry is next year. The company, which counts more than 20 nationalities among its staff, has already had problems recruiting EU workers in the past 18 months. “We want the best of the best from around the world,” says Mr Griffith.

One concern for such customer-facing businesses is whether there will be a slowdown in consumer spending, which has been seen in parts of the economy such as high street retail and casual dining.

Mr Griffith says businesses such as his are “holding their breath” to see what will happen next as economic data suggest that the British economy — while not booming — is at least not falling away strongly. 

Economic growth was sluggish at the start of the year, but recovered in the three months to July as retail sales were propped up by a hot summer and the England football team’s progress in the World Cup, in spite of a weak quarter for manufacturers.

But economists warn that the economy could remain subdued in the run-up to Brexit. 

John Hawksworth, chief economist at PwC, said that “with Brexit-related uncertainty continuing to weigh on business investment, the UK is likely to remain in the slow lane of global growth for some time to come”. A report this month by BDO put business confidence at its lowest level for 15 months on Brexit concerns.

Other forecasts make a distinction between different kinds of Brexit. KPMG expects gross domestic product to grow by 1.4 per cent next year if the UK and EU strike a “good” deal, but in a “no-deal” outcome this falls to just 0.6 per cent.

The IoD’s business confidence tracker shows the optimism shown earlier in the year following phase one of Brexit negotiations has faltered. It found that its members’ expectations for future investment and employment remained subdued, while a majority of directors anticipated rising costs for the year ahead.

Edwin Morgan, director of policy at the IoD, says business confidence in the economy has ebbed away this year as a no-deal scenario became more likely, but this could be expected to return quickly should there be a suitable agreement. “No deal is the biggest concern,” he says. “Businesses will adapt to a different relationship with Europe.”

He adds there are more domestic concerns too, pointing out that the high street has continued to be hampered by high business rates, while productivity remained an area that the government could work on.

However, not all businesses are worried — and Mr Morgan says the sort of companies that appear in the FT’s index are more likely to be confident about the future given their entrepreneurial bullishness. 

Ed Goldfinger, chief financial officer at MOO, an online print and design company also recognised in the “consistent growth” category of this year’s FT Future 100 UK list, says “shifts in government policy or trade relations can create new costs, often resulting in companies becoming more selective when it comes to investment”. But, he warns against “knee-jerk reactions”.

He says: “Any company with hopes for sustainable growth needs to be prepared for shifts in the landscape or business regulation in the longer term.” For MOO, Europe represents a “relatively small” proportion of its revenue, Mr Goldfinger adds, giving it some protection as it continues to invest for the future.

Companies with a strong ethos, he argues, are also more likely to weather geopolitical storms. The FT Future 100 UK looks to recognise businesses that are leaving a mark, or growing consistently, whatever the weather.