The latest SME Barometer from Prism has been released, highlighting a cautious yet steady increase in business confidence among UK SMEs.
Despite ongoing economic challenges, SMEs are displaying remarkable resilience and optimism for the future.
Business Confidence on the Rise
The Institute of Directors (IoD) Confidence Index improved to -10 in April 2024 from -12 in March, showcasing significant recovery from a low of -31 in June 2023. This indicates a gradual return of optimism among business leaders.
Mixed Outlook for Individual Firms
While overall confidence is growing, concerns at the individual firm level persist. Optimism for firms’ own organisations slightly decreased from +42 in March to +38 in April 2024.
16% of firms feel ‘quite’ or ‘very’ pessimistic about their prospects.
Positive Revenue Expectations
Despite a slight dip, net revenue expectations remain strong at +40 in April, down from +44 in March.
This suggests SMEs anticipate growth in their business activities in the coming months.
Recruitment Plans
41.5% of SMEs intend to recruit additional team members in the coming year. This indicates a positive outlook for job creation in the sector.
Meanwhile, varying confidence levels across regions show unique trends. The East of England shows the strongest confidence, rising for the third consecutive month.
Regional Variations
Wales and the South West have seen the biggest increases in business confidence.
The North East remains strong despite a slight easing.
These regional differences highlight the diverse landscape of SME confidence across the UK.
Challenges Facing SMEs
The SME Barometer highlights several ongoing challenges. High interest rates, inflation, liquidity issues, and lengthening credit cycles are significant obstacles.
Access to finance is a significant concern, with 77% of finance brokers believing the funding gap for SMEs is widening. The closure of over 140,000 SME bank accounts in 2023 due to ‘debanking’ has further complicated the financial landscape.
Policy and Economic Factors
Recent policy changes and economic indicators are influencing the SME landscape.
The Spring Budget’s inclusion of full expensing tax relief on leased assets is expected to boost productivity.
An increase in the VAT threshold to £90,000 provides some relief for SMEs dealing with increased costs. Meanwhile, a 2% reduction in employees’ National Insurance Contributions might impact R&D tax relief for some companies.
Expert Commentary
Dr Roger Barker, Director of Policy at the Institute of Directors, states: ‘The economy is stuck in a rut of weak business confidence, inadequate business investment, and poor productivity growth. Without a solution, the UK will face constrained public finances and declining living standards.’
Tina McKenzie, Policy Chair at the Federation of Small Businesses (FSB), remarks: ‘SMEs’ confidence levels started to rise over the first quarter of this year, and we want to see this momentum continue rather than stalling or slipping back.’
Hann-Ju Ho, Senior Economist at Lloyds Bank Commercial Banking, adds: ‘Businesses are increasingly confident about the economy, coinciding with falling inflation and hopes that interest rates will decline this year.’
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, notes: ‘The flash PMI survey data for May signalled a further expansion of UK business activity, suggesting the economy continues to recover from the mild recession seen late last year.’
Conclusion
In conclusion, while overall confidence is growing and many indicators point towards recovery, significant challenges remain. SMEs continue to demonstrate remarkable resilience in the face of economic uncertainties, with many planning for growth and expansion.
As the backbone of the UK economy, the performance and outlook of SMEs will be crucial in shaping the country’s economic future.
Policymakers, financial institutions, and business leaders must collaborate to address the challenges facing SMEs and create an environment that fosters their growth and success.