3 minute read
Close Brothers Asset Finance
On the pulse
SME optimism dips as inflation and cost rises bite
Anton Nebbe Head of PR and Communications Close Brothers Asset Finance
Every quarter Close Brothers Asset Finance surveys around 1,000 of the UK’s SMEs, many of which use broker services to access financial support and advice. Collating their views in the Business Sentiment Index (BSI) is an important way for us to keep our finger on the pulse of business owner confidence at a given moment in time. It also helps our business finance teams and our broker partners gain valuable insights into the thoughts and opinions of SMEs.
The index tracks business at a macro (UK) and a ‘key’ sector level, namely:
• Transport and haulage • Construction • Manufacturing and engineering • Services
Latest results
The latest results found that business confidence reached record levels in late 2021 across all sectors, except construction, but has since fallen back. The downturn in sentiment is by no means as severe as it was after the first lockdown was announced, but it is clear the rise in both inflation and the consequent uplift in the costs of doing business, including fuel and energy, are having an impact.
According to our figures, the other primary growth inhibitors were supply, driver, skills, and material shortages alongside the influence of Brexit.
With many respondents facing an uplift in the cost of living – 78% admit to this being the case – it is not surprising costs are being passed onto their customers. Four in 10 respondents have chosen to pass the full cost increases onto customers while a further 24% have done so ‘partially’; 36% have chosen instead to absorb the cost increases.
Working with a statistician, the score we use is calculated using four key metrics that chart respondents’: appetite for investment in their business in the coming 12 months; access to finance and whether they’ve missed a business opportunity through lack of available finance; views about the UK’s economic outlook; and thoughts on their likely business performance in the coming 12 months.
In turn, this has caused wage inflation in the last six months for 43% of firms, most notably in the engineering sector, where the figure rises to 60%.
How the sectors have fared
It is important for brokers to note that some sectors are more exposed to cost rises and shortages than others, and this is reflected in the scale of the fall in the BSI score. The UK averaged 27.9, down 3.85. Transport and haulage fared worst, down 6.76 to 27.1, followed by services which fell by 6.1 to 20.7. Elsewhere, manufacturing and engineering fell 2.43 to 38.1. Construction was the least affected, down only 1.45 to 31.5.
Appetite for investment
Overall, firms’ appetite to invest remained relatively solid, but still fell across all sectors and is more in line with results from April 2021. Despite the fall, figures are still very positive, notably in engineering and manufacturing where there is clear ambition.
Missed opportunities
Once again, over a third (36.9%) of companies surveyed (UK average) have missed a business opportunity because of a lack of available finance. Many businesses now require additional finance to enable them to invest in growth and continue their recovery.
A government report recently stated that a shortage of credit for SMEs is one of the causes preventing the UK from ‘levelling up’. Like our business customers we have offices across the UK where we are actively working to address this imbalance helping business owners to secure the funds they need to grow.
Economic outlook
Positivity about the economic outlook is the one indicator that improved since the last BSI with around 40% of UK SMEs expecting the economy to continue growing while a further third anticipates a ‘slow path to prosperity’.
