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You are here:  Media centre  >  News and opinion  >  2017

Health of UK SMEs falls to lowest level in three years

The health of small and medium-sized enterprises (SMEs) in the UK has fallen to its lowest level in three years, according to the SME Health Check Index, a new quarterly economic index compiled by leading economics consultancy - Centre for Economics and Business Research Limited (Cebr) in association with CYBG PLC, owner of Clydesdale and Yorkshire Banks.

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

In the first quarter of 2017, while SME business confidence rose markedly in the last quarter, taking into account the wider SME business environment, the Index overall fell by almost 10 points, from 56.4 in the final quarter of 2016 to 46.5, due to a number of factors including inflation outstripping wage growth which limited consumer spending, and weak currency that raised the cost for imported commodities and materials.

Introducing the maiden report, David Duffy, CEO at CYBG, said: “Small and medium-sized businesses are the absolute engine room of the British economy, and their future prospects are going to be ever more critical in a post-Brexit world, where we are dependent on a stronger and more competitive domestic economy.

“It is vital that we understand how SMEs are performing. The creation of the SME Health Check Index brings together a range of indicators on the health of the UK’s SMEs for the first time and will be an important tool in helping understand how we can better support SMEs.”

“This research clearly indicates SMEs are facing challenges, but we want to further support our customers with robust insight that clearly explains where businesses are prospering, the areas of concern and identify trends are so we are in the strongest position to help. We hope this will lead to a more informed debate about how we can make these businesses succeed.”

The report has found:

  • A 9.9 drop between Q4 2016 and Q1 2017 - the SME Health Check Index fell from 56.4 in the final quarter of 2016 to 46.5 in the first quarter of 2017. This is the lowest reading since the beginning of the series in the first quarter of 2014. (This first Index concentrates on Q1 of 2017, but includes a historic look back to the start of 2014 to allow a comparison of how the economic situation for SMEs has changed over the last three years).
  • Only two out of the eight indicators of the SME Health Check Index improved since the previous quarter – SME business confidence and rising employment levels across the UK had a positive impact on the Index.
  • Slower revenue growth, rising spare capacity and a sharp increase in bankruptcies all exerted downward pressure on the headline figure. The number of UK business insolvencies rose by almost 6% since the previous quarter.
  • Wales and Yorkshire and the Humber lead the regional ranking, with the SME Health Check Index in the former up 3.1 points since Q4 2016. Improved business confidence, relatively low levels of spare capacity and increased lending to SMEs were some of the factors positively contributing to the improving business and economic health of SMEs in Yorkshire and the Humber.
  • Northern Ireland and the West Midlands place at the bottom of the regional ranking. Weak employment growth, high levels of spare capacity and subdued lending all negatively impacted Northern Ireland’s SME Health Check Index.

The quarterly index, which includes UK and regional breakdowns, is rated between 0 and 100, with a score of 100 indicating maximum positive conditions in the sector and the indicators on which it is measured.

Graeme Sands, Head of Business Banking, at CYBG, said: “It’s clear that SMEs faced a challenging start to 2017 with a number of indicators contributing to a weaker position. We will be watching closely to see how these numbers change during the course of the second quarter and if this dip is purely a temporary softening as is suggested in the report.”

Earlier this year, CYBG committed to making a minimum of £6 billion 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.

Graeme said: “We understand the importance of SMEs to the UK economy and the varying challenges businesses are facing, particularly given our experience in the North of England and Scotland. The quarterly SME Health Check Index is an invaluable resource, especially as Britain’s position in the global economy continues to evolve.”

Oliver Kolodseike, Senior Economist at Centre for Economics and Business Research (Cebr), said: “With SMEs accounting for over 99% of all UK businesses, their significance to the wider UK economy is unquestionable. The new SME Health Check Index offers insight into the business and economic environment in which small and medium-sized enterprises operate by monitoring a number of relevant indicators.

“The results clearly point to challenging conditions faced by the UK’s SMEs during the first quarter of 2017. Business costs rose strongly while subdued lending and weaker than expected GDP growth also exerted downward pressure on the index. Encouragingly, however, business confidence and employment remain robust, adding to hopes that the weak reading of the SME Health Check Index in the first quarter was just a temporary blip, rather than the beginning of a more serious negative trend.”

View UK SME health check infographic 2017 (opens in a new window)

View UK SME health check report 2017 (opens in a new window)

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