Business Sentiment Index – cautious return to confidence for Woodworking SMEs

from Furniture & Joinery Production #353

ON THE EDGE

Close Brothers Asset Finance’s Business Sentiment Index (BSI), which measures SME business confidence, has risen for the first time since September 2021 following three consecutive falls, and a low at the end of 2022. These were caused, in the main, by rising inflation, energy cost increases and higher interest rates.

Despite the headwinds still being faced by small and medium-sized firms and inflation stubbornly remaining in double digits, wholesale energy prices have fallen from their summer 2022 peaks, and there appears to be more certainty about where interest rates rises are headed, all of which is helping firms plan with more assurance.

This change in confidence is better understood when looking more closely at Woodworking businesses’ priorities, which are managing costs (29%; UK: 26%) and achieving growth (22%; UK: 28%) well ahead of issues like paying down debts (10%; UK: 9%) and business consolidation (9%; UK: 9%).

Appetite for investment

Overall, the appetite to invest remains strong, as it was at the end of 2022, with 83% (UK: 75%) of Woodworking firms looking to seek funding for investment in the next 12 months.

Missed opportunities

The number of Woodworking companies that have missed business opportunities because of a lack of available funding stands at 47% (UK: 45%) in May 2023.

While this is an improvement, these are historically ‘high’ figures – for example, in May 2022, 37% of UK respondents answered ‘yes’ to the question ‘have you missed a business opportunity in the last 12 months, due to lack of available finance?’.

It would appear businesses are concerned about impacting their cashflow by dipping into their reserves or taking out a standard loan and adding to their debt burden.

Economic outlook

Woodworking businesses are more positive than negative about the macro-economic outlook, ‘outperforming’ the consolidated UK sentiment. Compared to the end of 2022, firms in the sector are considerably more optimistic than they were. This indicator has contributed most to the decline in the overall BSI; for example, in November 2021 75% of respondents were positive about the economy – by December 2022 this had fallen to just 38%.

Predicted business performance

Predictions about future business performance remained stable, with the majority expecting their prospects to remain unchanged. Overall, fewer firms predict they will contract than earlier in the year (7% against 11%).