As the UK and EU finally move onto trade talks in the next phase of Brexit negotiations, British businesses of all shapes and sizes will be watching with bated breath to see what kind of deal will be struck.

Some politicians seem to think that, whatever happens, UK plc will be able to seamlessly shift more focus onto trade with the rest of the world if a suitable deal cannot be agreed. To their minds, this will compensate for any loss of business with our EU neighbours. That seems to be wishful thinking.

HMRC data shows that the number of UK businesses trading with the EU dwarfs those trading with the rest of the world, and the gap has grown wider.

In 2016, the year of the Brexit vote, around 210,000 UK VAT registered businesses traded with the EU – an increase of 5,000 on the previous year.

By comparison, only 145,000 UK VAT registered companies traded with the rest of the world in 2016, an increase of just 4,000 in a year.

There are many reasons why trading with continental Europe has so many basic, fundamental and obvious advantages. For small to medium-sized businesses (SMEs) in particular, accessing trading opportunities within the EU is much easier than it is for the rest of the world.

Many UK companies have built up strong contacts and networks within Europe, and the logistics of doing business there are much more straightforward.

For one thing, time zones are broadly similar so businesses can get hold of clients during the same working hours, something which is far more challenging for customers half way across the world. Travel between the UK and Europe is also cheap and quick so it is easier to prospect for customers there.

And with record numbers of Europeans now working in the UK – 2.38m at the last count - there is a very substantial pool of EU expertise and connections available within the UK for SMEs to tap into when they want to begin exporting there.

Businesses can also avoid the additional friction costs associated with trading internationally through the use of low cost European money transfer systems. This can be vital, especially for SMEs, where cash flow management is essential if they are to operate successfully at an international level.

Business interruption

At the same time, many of the businesses who trade with the EU are simply not set up to trade globally, nor can they afford the costs associated with doing so. Even if new trade deals can be struck elsewhere, a straightforward swap of business from one to the other will not be easy.

Establishing new networks and business relationships in other countries will take time, geographical and cultural hurdles may need to be overcome and supply chains could become more complex or more vulnerable.

Even if the will from companies is there, trying to switch the business they do with the EU to elsewhere is going to be a huge and complex task. Some may even have to shrink their businesses as a result. Like it or not, for many, business as usual will be interrupted, and at what cost to the UK economy?

Those who think no deal would be better than a bad deal should take note: either outcome could be detrimental to the interests of UK plc, potentially affecting hundreds of thousands of businesses who currently do business in Europe.

It is vital that negotiators focus single-mindedly on securing the right deal, rather than relying on the belief that trade with the rest of the world is a comparable back-up.

Is the idea that the EU can be replaced by new export markets in a relatively painless way a pipe dream? The many businesses we speak to on a regular basis think so and the government’s own figures provide evidence of just how much British businesses rely on European trade.

Economic growth, jobs and tax receipts are at stake. The EU would see an important export market compromised too. That’s why for both the UK and EU alike, maintaining free access to the market is vital post-Brexit.

About the author

Gita Petkevica is founder and managing director of Opal Transfer