UK SMEs are sensing dark clouds on the economic horizon

Humber Bridge

Results of our SME Confidence Tracker, published by the Daily Telegraph, highlight subdued business confidence in Q3. Our research among 1,000 UK SMEs, shows declining business performance and significantly lower sales expectations for the final quarter, when compared with the same period in 2014.

Investment is also on shaky ground. Less businesses are recruiting, and – overall – investment in people is down 6%, year-on-year.

Though there are small pockets of optimism in both geography and industry, research points to a more cautious and pragmatic approach to the future. Those businesses that are investing are prioritising IT systems and equipment over people.

The results of the Tracker align with the Bank of England’s summary of business conditions for August and September, which shows slowing growth throughout the UK and across key sectors.

Ripples from overseas
Many observers believe that concerns over the stability of the global economy – as a result of declining growth rates in China – have caused anxieties in the UK economy and UK PMI reported  the weakest growth since April 2013 in September.

These concerns are compounded  by further questions over interest rates in the UK and US, the ongoing debate over EU reform and referendum and low – or negative – inflation we have witnessed in recent months. One can’t forget Russia either.

I believe that there is underlying inflation which is being masked by weak oil prices. If this is the case, when oil prices stabilise, inflation should reappear quickly. It’s likely to be for this reason that the Bank of England continues to discuss the possibility of a rate rise. There is also a reasonable possibility, however, that  some of these global concerns will dampen down demand, keeping inflation low. Only time will tell.

Problems at home
For SMEs, issues closer to home persist. Bad debt is on the rise, and over a quarter of the businesses we spoke with told us that they have been forced to write-off moneys owed to them in the past year.

Furthermore, late payment continues to act as a barrier to growth with almost half of businesses waiting more than 31 days for payment from customers.

In relation SME lending, things are also wavering. In my 37 years’ experience of lending, I have never witnessed so much money chasing so few business customers. One result of this is lower prices and – while this may be positive for SMEs in the short term – the accompanying rise in risk taken by many lenders is unlikely to end positively. In my experience, the longer a correction takes to arrive, the harder the landing will be.

Whatever the outcome of these domestic and global issues, it seems – for the time being at least – the hopeful optimism of last year has been replaced with anxious uncertainty as we move towards 2016.