International trading has always been risky. But UK traders exporting to the EU have faced major hurdles over the last two years due to Brexit-related changes and uncertainties. So many things can go wrong – completing the right forms and paperwork, getting proof for rules of origin, the logistics and costs of transportation, and then the potential holdups and delays at the border if the goods eventually pass through after various checks, plus additional VAT to pay. When it goes wrong, firms do not get paid, instead they end up paying.

In this context, many businesses have made the decision to cut down or no longer export. Several sources report that a sizable fraction of UK exporters have reduced exports in some significant way or stopped exporting altogether in the past two years since the new EU-UK Trade and Cooperation Agreement (TCA) was implemented.

But still, like in any crisis, while there are those that have struggled and perished, there are always survivors and thrivers. In the long period of uncertainty during UK’s Brexit transition, some businesses responded better than others. Although overall preparedness for Brexit amongst UK firms was low, some businesses were, to varying degrees, prepared for the changes.

Firm performance in times of uncertainty depends on how well they can adapt to the changing conditions they face relative to other firms with whom they compete for resources and markets. But this isn’t all: they must make these adaptations without clear knowledge of what the most optimal approach will be for overcoming future business challenges.

My recent research investigates the role of business confidence in helping firms to continue exporting in what has been an extraordinarily challenging time. Drawing on the British Chambers of Commerce (BCC) Trade Survey conducted during July and August 2022, a sample of 395 UK exporters, primarily small and medium-sized, reveals that firm’s business confidence really matters to exports. In particular, business confidence impacts on UK firms’ experience of adapting to the new TCA rules. And adaptation and preparedness help explain more successful trade performance.

For policymakers, the research findings highlight the importance of improving business confidence by reducing information frictions. Given that business confidence is partially formed from the facts of a firm’s operating environment, coupled with the rational expectations that come from the picture presented about the future (e.g., by government/media), it is crucial that accurate facts are communicated effectively to firms.

The research findings also emphasise the need to improve firms’ capabilities to assess and predict their business conditions in an uncertain and changing environment. This is especially the case for small businesses. The ability to predict business conditions accurately and prepare for uncertainty accordingly is the bedrock of business confidence, which goes on to drive decisions to allocate resources and future investment. Firms that are in the early stages of entrepreneurship and small businesses that are constrained by resources are particularly vulnerable, as the evidence suggests that larger and older firms tend to predict their own performance better than younger and smaller firms.

Looking forward, in a time of continued uncertainty, it is ever more important that concerted efforts are made collectively by government, business associations (such as the British Chambers of Commerce and the Confederation of British Industry), experts, and the media on improving business confidence. This, coupled with a focus on supporting firms to better assess their business conditions and opportunities, will drive good decision making, and improvements in trading performance.


Published: British Chambers of Commerce

[7 February 2023]