The latest SME Confidence Tracker shows that SMEs are at risk of a downturn.

Bibby Financial Services (BFS) says that its new data reveals challenges in the face of declining sales and increasing costs as the value of the pound lingers at historically low levels.

The independent funder is calling on the government to reassure Britain’s business community amid concerns that a no-deal Brexit would cause confidence to fall even further.

The scale of the situation

Sales growth slowed for small and medium-sized businesses in 2018. The number of businesses that saw their sales increase fell to just over a third (35 per cent) in Q4 2018 from 39 per cent in Q1 2018.

In 2019, just over a third (36 per cent) expect increased sales in Q1, compared to 50 per cent a year ago in Q1 2018.

Almost a third (32 per cent) of those SMEs have linked a rise in their business’ costs to a fall in the pound.

Meanwhile, over a quarter (27 per cent) say that uncertainty arising from the UK’s exit from the EU is holding back investment.

SME confidence has also declined by 6.7 points from 64.7 in Q1 2018 to 58 in Q4 2018. Said decline in confidence has also impacted SMEs’ investment intent as those engaging in capital expenditure dropped 14 percentage basis points from 80 per cent in Q4 2017 to 66 per cent in Q4 2018.

‘Recession territory’

Edward Winterton, UK CEO of Bibby Financial Services, warns that the research is sobering for policymakers and the wider business community.

Data also suggests that there has been a gradual decline in the amount SMEs are prepared to invest in their businesses. The amount invested fell each quarter in 2018 from £103,648 in Q1 2018 to £68,697 in Q4 2018, leaving an investment gap of £34,951 since the beginning of the year.

Winterton adds, ‘If SMEs are hesitant to invest in their businesses, it means they’re at risk of going into recession territory. Growth does not come from sitting on cash or waiting for things to get better,

‘Conversely, even as costs are rising, I urge SMEs to look at their spending for the year and set aside capital to invest in their people, products and plans. Investment of this nature is crucial for generating growth’.

Take a look at The Brexit opportunity: How small businesses can thrive in a post-Brexit landscape for some much-needed optimism