In July 2016, The Telegraph reported that entrepreneurs were starting new companies in the UK at a rate of 80 per hour. While the number of startups being set up in the UK points to a prosperous economy, last year’s referendum vote on June 23 changed the course of the UK’s economics. This has been further complicated by the fact that the question of whether the country will have a soft or hard Brexit has yet to be answered. As the Brexit negotiations continue to show no sign of producing a clear answer on Britain’s economic future, startups are starting to feel the impact.

Startup development

One of the big fears that British businesses are facing is an exodus of startups out of the country. According to the Financial Times, at least 5 notable London-based startups have already moved out of the city and into Berlin since the Brexit vote, and 39 more are considering relocating. At the Silicon Beach Festival in Los Angeles last year the question of the UK’s ability to keep startups was debated. Rebecca Fannin of Forbes concluded: There is little doubt that London will need to do more to shore up its position with startups and venture capitalists pondering where to invest and set up shop.”
The value of the pound is a key point for startups looking to move location. After the referendum vote the value of the pound dropped by 11% and despite a few surges (usually in line with governmental hints of a soft Brexit) it has failed to get near the pre-referendum value. For startups that import services and products from abroad the fall in the pound will have raised their overheads to a level where moving operations could be cost-effective.

The Impact of Hard Brexit

Should a hard Brexit happen, the UK will have to radically change its immigration and international trade policies. According to an article by FXCM, a hard Brexit would mean a complete separation from the Eurozone, and a return to an arrangement that existed before Britain’s entry to the organisation. This would mean higher shipment and trade costs with former EU partners, as well as stricter immigration checkups that would affect potential skilled workers and experts coming in from the EU. For startups, this will have an effect on who and where they can recruit from. A hard Brexit would potentially reduce the pool of talent from 743 million to 64 million.

EU Reaction

Business leaders in the EU are angling to take advantage of Brexit and attract future startups to their respective countries. One example of this is French digital minister Axelle Lemaire who has travelled all over the globe to promote what she calls “La French Tech”. This is a movement that encourages entrepreneurs to headquarter themselves in France instead of the UK. Both Germany and Ireland have also signalled that they are willing to take businesses, particularly financial services, from the UK.

The Future

While the full impact of Brexit is unknown there are positive signs that UK startups are continuing to push forward despite the challenges of Brexit. For instance, the UK has seen an increase in female-owned businesses and startups in recent years. Although British businesses and entrepreneurs face a difficult future it is clear that innovative businesses are still being developed. The startup industry is built on entrepreneurial spirit and even with Brexit the UK continues to show signs that it will overcome the challenges.



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