West Midlands is ‘one of most vulnerable regions' to Brexit risks

According to latest research by banking group CYBG, the region is third in the list of regions which could be most hit by the potential impact of Britain leaving the EU.

It is based on four indicators – exports, labour supply, imports and foreign direct investment – with the West Midlands only behind Scotland and Wales.

The research by CYBG, the holding company behind Clydesdale Bank, is the second in a week that raises concerns about the economic impact of Brexit, especially if the UK is forced to leave without a EU trade deal in place.

On Friday, we revealed concerns laid out in a report from the West Midlands Economic Forum.

According to the forum, Brexit could bring a loss of funding for local government and a shortage of social care nurses in the region.

The forum was asked to look at potential impact on trade and business, employment, funding, infrastructure and public services in the wider West Midlands.

Aside from London, EU migrants make up a larger share of the workforce in the West Midlands than in any other UK region.

Additionally, it has also benefited from high levels of foreign direct investment from EU companies.

The CYBG research also raises concerns about the health of small and medium sized firms – known as SMEs.

The confidence score of SMEs in the West Midlands witnessed a one-point drop in the third quarter of 2018.

Revenues

It has revealed that business health in the region has fallen to 43, with significantly weakening revenues.

However, it’s the only region to see an increase in SME confidence between the second and third quarter of the year, likely driven by the rapid employment growth experienced in the region recently.

Looking at the national picture, CYBG’s third quarter SME Health Check Index has found that the market is broadly stable, having recorded 46.3 points, down 0.7 points from last quarter.

Although the drop is not severe, the findings represent the second lowest level recorded since data collection began at the start of 2014 and were largely driven by depressed business confidence across the quarter. The report revealed that although the UK economy grew by 0.6 per cent – the fastest rate of quarterly growth rate since 2016 – market sentiment has been subdued. This is doubtlessly partly attributable to the impact Brexit has had on SMEs outlook.

However, there is some positive movement, with UK SMEs reporting improvements in four of the eight performance indicators – capacity, employment, gross domestic product and net business creation – while the index score for lending remained unchanged. The third quarter also saw improvements in the retail sector alongside recoveries in manufacturing.

Gavin Opperman, group customer banking director, at CYBG, said: “Sectors which have previously struggled, such as construction and manufacturing, have shown marked improvement and SME confidence has increased. Framing this is relatively strong GDP growth, particularly impressive given other major economies have slowed.

“Given this seemingly positive backdrop, it would be reasonable to expect this quarter’s Health Check Index to reflect a more optimistic SME market, however the political and economic uncertainty driven by Brexit have sowed seeds of doubt and businesses have made it clear that they are unsure about what 2019 holds for them.”