As the Brexit transition period comes to an end, new research from Hitachi Capital Business Finance has found businesses were twice as likely to be concerned about the impact of COVID on their business as they were about the impact of Brexit.

Asking a nationally representative sample of 1,107 small business leaders what they thought their biggest barriers to growth was in the next six months, the study revealed over half 51% cited the direct impact of COVID on their business operations. By comparison, a quarter (25%) were concerned about Brexit and its impact on their business.

The research comes as the proportion of businesses either contracting or struggling survive remains high at 27%, up from 15% pre-COVID.

Among businesses in the hospitality and leisure sector, the proportion scaling back operations this quarter rose to 48%, with 81% citing COVID as their main barrier to growth – three times the proportion concerned about Brexit (23%). Similarly, a third (33%) of businesses in the manufacturing sector were scaling back, with close to twice the proportion concerned about COVID (46%) as they were Brexit (23%).

The study found that one in ten (11%) small firms are looking to expand into new geographical markets, rising to 18% of businesses that were currently expanding.

Interestingly, the businesses most attuned to the consequences of Brexit in the coming months were those who largely operated online. A third (34%) of businesses that did most of their trading online were focussed on Brexit, compared with 19% of businesses that operated largely offline.

Joanna Morris, Head of insight at Hitachi Capital Business Finance comments,“The COVID-19 pandemic changed every aspect of our lives in 2020, and the economic impact is yet to be fully understood. Such a shock to the system will take a long time to recover from – some sectors worse affected than others – while changes adopted during this unprecedented time could have permanent effects. Confidence in Q2 this year dropped to the lowest levels we have ever seen, and while the bounce back has been strong, confidence levels remain a long way below where they were pre-COVID.

 “Before the pandemic, Brexit was front of mind for the majority of business owners. As we enter our second national lockdown closer to the deadline, we are no further along with plans to comply with the changes, minimise any negative impacts and capitalise on the positives. This loss of momentum is a concern. It is vital that all channels for business remain open and clear in our increasingly connected world. The pressure on Government and small business owners to make a success of Brexit in the coming months has intensified.”