Tough outlook for SMEs

By Graeme Sands, head of business lending

SME Health Check Index falls to lowest level in three years

The Q3 SME Health Check Index from CYBG – owners of Clydesdale and Yorkshire Banks – , compiled in association with leading economics consultancy Cebr, has recorded its lowest score since January 2014, with the indicators for employment, revenue, confidence and net business creation all down compared with Q2. Businesses in the North and the Midlands were worst hit – areas of the country that have been prioritised by the government and where there already exists a substantial gap in growth compared with London and the South East.

Alarmingly, six out of the eight indicators in the Index have worsened since the previous quarter. The North East, West Midlands and Yorkshire experienced the sharpest declines.

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 reflected in the UK’s growth forecast, 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 and sustained poor performance by SMEs could have a significant and long-term negative impact on the economy. Given the recent drop in the 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.

Earlier this year, CYBG committed to making a minimum of £6bn of lending available from 2017 to 2019 to help fuel the growth of SME businesses in the UK, underscoring the critical role that the banking sector plays in supporting new enterprises and cultivating established businesses.

The SME Health Check Index measures business performance and the macroeconomic operating environment affecting SMEs, including net business creation, business costs, capacity, confidence, employment, gross domestic product, lending and revenue.