This quarter’s SME Health Check Index from the owners of Clydesdale and Yorkshire Banks (CYBG) and compiled in association with the Centre for Economics and Business Research (CEBR), has recorded its lowest score since January 2014, with the indicators for employment, revenue, confidence and net business creation all down compared to the second quarter of the year. Businesses in the North and the Midlands are the worst hit – areas of the country that have been prioritised by the Government and where there already exists a substantial gap in growth compared to London and the South East.
A reading of 46.9/100 in the third quarter of 2017 is the lowest since data collection for the Index began in 2014. Alarmingly, six out of the eight indicators in the SME Health Check Index have worsened since the previous quarter. The North East, West Midlands and Yorkshire experienced the sharpest declines, with the regions’ SME Health Check Index scores falling by 25.9, 16.8 and 15.4 points respectively.
Given the importance of SMEs to the health of the UK economy, this is concerning news, particularly when considering that previous drops in the Index have been aligned with a reduction in GDP growth. One of the factors influencing the Index is the drop in business confidence and uncertainty caused by a lack of clarity in Brexit negotiations, as well as the potential for further increases in interest rates. Reduced business confidence is also being reflected in the UK’s forecast growth, with the OBR now saying that GDP will not grow by more than 2% a year for the foreseeable future. In addition, there is still growth in business start-ups, but this is slowing, causing a drop in the net business creation indicator.
Small and medium businesses are essential to the productivity and prosperity of the UK economy. There are 5.7 million SMEs, employing 16.1 million people (60% of private sector employment) and they account for 51% of the UK’s total business revenue (£1.9 trillion a year). Sustained poor performance by SMEs could have a significant and long term negative impact on the economy. Given the recent drop in the SME Health Check Index, CYBG is calling on the Government to make changes sooner rather than later and do more to help businesses manage their costs and restore confidence.
Commenting on the report, David Duffy, Chief Executive Officer at CYBG, said “The recent announcements made by the Chancellor in his Budget to help SMEs, especially on business rates, were very welcome. We also welcome the publication of the Industrial Strategy White Paper and the important measures this includes to build long-term prosperity, particularly outside of London and the South East. However, what is clear, is that more needs to be done in the short term to help boost confidence amongst SMEs while we wait for the longer-term benefits of some of these policies to take effect.”
Oliver Kolodseike, Senior Economist, CEBR said “It is disappointing that SMEs are currently facing an increasingly challenging economic environment, with rising business costs continuing to act as a barrier to stronger business growth. Confidence and business creation are also down which is likely a result of the political uncertainty that persists. With the OBR recently revising down its growth and productivity forecasts for the coming years, SMEs may face a challenging 2018.”