Early warning signs of downturn loom among UK SMEs

Rising bad debts and delayed investment for UK small businesses point to slow down over the months ahead.

Signs that the economy may be heading for a downturn are evident amongst UK SMEs, according to the latest SME Confidence Tracker report from business funder, Bibby Financial Services (BFS).

Data for Q2 reveal that bad debt – the value of unpaid invoices written-off by each business – has jumped to £20,403, an increase of more than 70 per cent compared to just a year ago.

The latest research also shows a trend of downturn investment amongst SMEs, with average planned investment reducing from £101,920 in Q2 2016 to £65,782 last month.

David Postings, Global CEO at Bibby Financial Services, comments, ‘SME activity is often a barometer of wider economic performance. When SMEs are taking on more work, hiring staff and investing in equipment and machinery, it is reflected in the performance of the wider UK economy.

‘However, right now we are now seeing signs that businesses are delaying investment decisions. Furthermore, data showing rising bad debts amongst SMEs could indicate a build-up of pressure in supply chains throughout the country.

‘It is possible that this is a sign that the UK is heading for a recession, but it’s still too early to call. We will know for sure over the coming months.’

More than a quarter of SMEs (28 per cent) said the uncertain economic outlook in the UK was preventing them from investing, followed by rising costs (26 per cent) and a desire to build up company cash reserves (25 per cent).

One in five (20 per cent) said uncertainty over Brexit was preventing them from investing in their businesses over the months ahead.

David Postings says, ‘In the wake of two general elections and a referendum in little over two years, not only is there voter fatigue, but there is a real sense of nervousness and trepidation amongst SMEs.

‘Businesses don’t know what’s round the corner and this is having a negative multiplier effect on supply chains around the country.

‘What we need now is clear direction from the government on our negotiations with the EU and clarity over its commitment to regional growth strategies such as the Northern Powerhouse and Midlands Engine, which are vital to help create a balanced economy.

‘The period when parliament returns following the Summer recess could be key as it will determine whether the government has the ability to survive and provide direction. If not another election may be required.’

When asked about the key challenges they face, SMEs indicated winning new business, finding and keeping skilled staff and managing cashflow as their top three woes.

David Postings adds, ‘Once a greater degree of political stability emerges between the UK and the EU, SMEs will begin to regain their confidence. However, for the time being, the UK’s 5.4 million small and medium sized businesses are sensing that there could be tough times ahead.’

Further reading on downturn

Owen Gough, SmallBusiness UK

Owen Gough

Owen was a reporter for Bonhill Group plc writing across the Smallbusiness.co.uk and Growthbusiness.co.uk titles before moving on to be a Digital Technology reporter for the Express.co.uk.

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Business confidence