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U.S. Middle Market Poised to "Brexit" on Some UK Investments

July 15, 2016, 07:42 AM
Filed Under: Economic Commentary

New data from the National Center for the Middle Market (NCMM) suggests more than one-quarter of U.S. middle-market companies will decrease business investments in the United Kingdom following the results of the "Brexit" referendum. About the same number say they will reduce their purchases from and sales to the U.K. The report, released today, details survey responses from 569 middle market firms, polled one week after the U.K. referendum results were announced on June 24.

Brexit reactions from the middle market are divided overall. Half of all middle-market firms (51 percent) predict no significant impact on their business, while the remaining 49 percent anticipate a somewhat to extremely significant impact on their operations. The subset of middle market firms that have international operations is a bit more bearish; 54 percent of these firms foresee a moderate to severe impact.

"From the data we're seeing, the Brexit vote doesn't look earth-shaking for the middle market as a whole," said Thomas A. Stewart, NCMM executive director. "At the same time, it's important to note that one-eighth of middle market firms (13 percent) are predicting an extremely significant impact on their business."

New Regulation May Be a Sore Spot for Trade
The United Kingdom will presumably require its own shipping procedures upon leaving the European Union, and middle-market executives express concern about the red tape this could create for them and their trading partners. Worries of regulation changes surrounding imports/exports — as well as varying fees and tariffs — are rising. Some fear this will prove more challenging if more countries follow the U.K.'s lead out of the E.U.

"The uncertain complexities Brexit introduces to international regulation are clearly troubling American exporters and importers," added Stewart. "Some are rethinking investment plans; but as one respondent phrased it, 'This is politics. Trade must go on.'"

Silver Lining for U.S. Economy?
U.S. companies predict some reductions in U.K.-based business investments, purchasing plans, and imports/exports. Twenty-eight percent of firms predict decreases in U.K. business investments, with a similar number (26 percent) anticipating an increase in U.S. business investments. "It looks like companies are taking money they were planning to invest in Britain and, instead, putting it to work at home," said Stewart. "If so, middle-market company responses to Brexit will hurt the United Kingdom and help the United States."

"Brexit and the U.S. Middle-Market" Methodology
The National Center for the Middle Market surveyed 569 executives (CEOs, CFOs and other members of the C-Suite) from the middle market to examine the anticipated impact of Brexit – the United Kingdom move to leave the European Union following the June 23, 2016, referendum. Of these firms, 261 reported that their company had international operations, with the remaining 308 reporting having operations solely in the United States. This survey was fielded shortly after the referendum results were announced, from July 1 to July 7, 2016. The survey was conducted by RTi Research on behalf of the National Center for the Middle Market and can be found here.

About the U.S. Middle-Market
A major driving force in the United States economy, the middle market delivers above its own expectations year over year. Middle market companies – those with annual revenues between $10 million and $1 billion – provide roughly one third of the United States' total employment and GDP. As an individual market segment, it is comparable to the economies of Germany and Japan.

About the National Center for the Middle Market (NCMM)
The National Center for the Middle Market is a collaboration between The Ohio State University's Fisher College of Business, SunTrust Banks Inc., Cisco Systems, Inc., and Grant Thornton LLP. It exists for a single purpose: to ensure that the vitality and robustness of Middle Market companies are fully realized as fundamental to our nation's economic outlook and prosperity. The Center is the leading source of knowledge, leadership, and innovative research on the middle market economy, providing critical data analysis, insights, and perspectives for companies, policymakers, and other key stakeholders, to help accelerate growth, increase competitiveness and create jobs in this sector.

Housed at The Ohio State University's Fisher College of Business, the National Center for the Middle Market is the first center of its kind in the nation. The Center enthusiastically serves middle market firms, students, academic researchers, policy makers, the media and other key stakeholders with interests in the health and well-being of the middle market. The Center is fully committed to funding and distributing the most credible open-sourced research, dynamically creating new knowledge, providing programs that drive value for middle market companies, and offering a well-informed outlook on the health and future of the middle market via the Middle Market Indicator.

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