The latest SME Barometer from Prism has been released highlighting  a cautious yet steady increase in business confidence among UK SMEs. Despite ongoing economic challenges, SMEs are displaying remarkable resilience and optimism for the future.

Key Findings:

Business Confidence on the Rise

: The Institute of Directors (IoD) Confidence Index improved to -10 in April 2024 from -12 in March, showing significant recovery from a low of -31 in June 2023. This indicates a gradual return of optimism among business leaders.

Mixed Outlook for Individual Firms: While overall confidence is growing, concerns at the individual firm level persist. Optimism for firms’ own organisations slightly decreased from +42 in March to +38 in April 2024, with 16% of firms feeling “quite” or “very” pessimistic about their prospects.

Positive Revenue Expectations: Despite a slight dip, net revenue expectations remain strong at +40 in April, down from +44 in March. This suggests SMEs anticipate growth in their business activities in the coming months.

Recruitment Plans: 41.5% of SMEs intend to recruit additional team members in the coming year, indicating a positive outlook for job creation in the sector.

Regional Variations: Business confidence varies across regions, with the East of England showing the strongest confidence, rising for the third consecutive month. Wales and the South West have seen the biggest increases, while the North East remains strong despite a slight easing.

Challenges Facing SMEs: The SME Barometer highlights several ongoing challenges:
– High interest rates remain a significant obstacle.
– Inflation, liquidity issues, and lengthening credit cycles are pressuring SMEs’ financial stability.
– Access to finance is a concern, with 77% of finance brokers believing the funding gap for SMEs is widening.
– The closure of over 140,000 SME bank accounts in 2023 due to ‘debanking’ has further complicated the financial landscape.

Policy and Economic Factors: Recent policy changes and economic indicators influencing the SME landscape include:
– The Spring Budget’s inclusion of full expensing tax relief on leased assets, expected to boost productivity.
– An increase in the VAT threshold to £90,000, providing some relief for SMEs dealing with increased costs.
– A 2% reduction in employees’ National Insurance Contributions, though it may impact R&D tax relief for some companies.
– PMI data suggests the UK economy is recovering, with GDP potentially rising by around 0.3% in the second quarter.

Expert Commentary:

Dr Roger Barker, Director of Policy at the Institute of Directors, states: “The economy is stuck in a rut of weak business confidence, inadequate business investment, and poor productivity growth. Without a solution, the UK will face constrained public finances and declining living standards.”

Tina McKenzie, Policy Chair at the Federation of Small Businesses (FSB), comments: “SMEs’ confidence levels started to rise over the first quarter of this year, and we want to see this momentum continue rather than stalling or slipping back. The economic growth we all desire will be greatly driven by the SME sector.”

Hann-Ju Ho, Senior Economist at Lloyds Bank Commercial Banking, adds: “Businesses are increasingly confident about the economy, coinciding with falling inflation and hopes that interest rates will decline this year.”

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, notes: “The flash PMI survey data for May signalled a further expansion of UK business activity, suggesting the economy continues to recover from the mild recession seen late last year.”

The SME Barometer, brought to you by Prism, paints a complex picture of the UK’s small business landscape. While overall confidence is growing and many indicators point towards recovery, significant challenges remain. SMEs continue to demonstrate remarkable resilience in the face of economic uncertainties, with many planning for growth and expansion.

As the backbone of the UK economy, the performance and outlook of SMEs will be crucial in shaping the country’s economic future. Policymakers, financial institutions, and business leaders must collaborate to address the challenges facing SMEs and create an environment that fosters their growth and success.

For more information about the SME Barometer and to access the full report, please visit: Prism SME Barometer.