2023 SME MARKET OUTLOOK

It looks like 2023 will be a tough year for the UK, with the Bank of England pointing to at least a year-long recession.

Inflationary shocks caused by the coronavirus pandemic and the war in Ukraine are already resulting in some difficult decisions being made by the UK’s established SMEs (businesses employing between 10 and 250 people).

This is a critical segment of the economy, which accounts for 30% of UK jobs and turnover, and is the driving force of innovation and growth in Britain. It’s vital, therefore, that banks and brokers are doing all they can to support them.

To help us and our broker community understand how we can contribute, Allica Bank conducted a survey of 150 established SME owners to gauge what these businesses are concerned about as we look ahead to a potential recession, and what this could mean for their growth and funding plans this year.

Outlook For 2023

To begin, we wanted to understand how SME owners assessed their current business health. The response was surprisingly positive.

Nearly half of respondents in our survey told us that their business is currently ‘very healthy’, with a further 41% saying ’slightly healthy’. It’s a strong starting position.

However, as we look further ahead into 2023, businesses are much less confident. When asked about whether their business plans for the year will be affected to some degree by the potential recession (without any government support), a significant majority said yes.

Around 55% said that their plans for 2023 will be ‘significantly affected’—with firms potentially having to cancel plans for spending on growth projects—while just over a quarter said they would be ‘critically affected’, meaning they may have to make redundancies or close locations. Around 11% of businesses claimed they wouldn’t survive at all.

How would you characterise your current overall business health?

Very healthy

Slightly healthy

Slightly unhealthy

Very unhealthy

Without further government intervention, how do you think the potential recession will affect your business over the next 12 months?

Fatally affected (i.e. insolvency)

Critically affected (i.e. redundancies, shutting of locations)

Significantly affected

(i.e. cancellation of spending)

Our business will be slightly affected (i.e. no further investments)

Our business will not be affected at all

WHAT ISSUES ARE BUSINESSES MOST WORRIED ABOUT?

Next, we wanted to explore the key economic factors that were affecting businesses and how these are changing over time.

When asked what is most affecting them currently, the supply chain crisis came out far ahead, quoted by 43% of businesses at the time of asking. This is over double the amount of respondents that identified labour shortages as their main challenge, which came in second.

This compares to 11% citing decreasing consumer spend and 7% that named the rising costs of raw materials as the factor most affecting their business right now. Notably, 17% said the lack of banks offering funding was their main concern— we’ll address this in more detail later.

Looking Ahead

We then asked business owners to rate to what extent they were concerned about a selection of economic factors that could impact them in the future, and how this differs from six months ago.

Unsurprisingly, inflation came out top, with 67% saying they were ‘very concerned’ (up from 58% six months prior) about how it will affect their future business health, and 29% saying ‘somewhat concerned’.

Interest rates also shot up the priority list—93% said these were a concern. This is up from six months before, when 47% said interest rates were ‘very concerning’ and 35% said ‘somewhat concerning’.

Energy and fuel were also cited by one in ten businesses as a cause for concern in the future, with fuel in particular seeing an increase over the time period. Now, over half say that rising fuel costs are ‘very concerning’ for the future of their business—up from 39%.

Of the below challenges facing businesses at the moment, which one is affecting you the most?

To what extent are you concerned by how each of the following economic challenges could impact your business?

Thinking about the same economic challenges that could impact your business, to what extent were you concerned with each of them six months ago?