Confidence rebounds to 2015 levels, but skills remain a concern for SMEs


By Edward Winterton, Chief Executive Officer, UK

22 May 2018

It is tempting to downplay each positive business indicator with questions and warnings over how long such performance will last. However, in the economic environment we have become accustomed to in the past two years, it is also realistic given some of the uncertainties.

In March we saw significant progress on Brexit as the UK and EU agreed the terms of a transitional arrangement. If the sentiment of this agreement signals one thing for the remainder of the negotiations, then we can expect to see tough stances followed by a number of compromises.

It is seemingly these compromises that have signalled to UK PLC that there may be light at the end of the tunnel. This is very much reflected in the results of our SME Confidence Tracker for Q1 2018, which shows confidence rebounding to levels unseen since a year prior to the referendum.

Confidence has risen by six basis points from 58 in Q4 2017 to 64 in Q1 2018. This is the Index’s highest reading since Q2 2015 when The European Union Referendum Bill was first unveiled in the Queen's Speech.

While almost two fifths (39%) of respondents said that sales increased in the first quarter of 2018, half of the SME owners we spoke with in Q1 said that they expect to see sales increase between April and July.

Over two-thirds (73%) of businesses plan to invest over the coming months. Training existing staff remains the top area of investment among SMEs (42%), though digital technology (30%) has overtaken recruitment (24%) to take second spot for the first time. This perhaps reflects a desire for smaller businesses to look towards automation and efficiency in 2018 and beyond.

Despite rising confidence, more than two-fifths of SMEs (43%) say that the uncertain economic environment in the UK and further questions surrounding Brexit are holding back investment levels over the months ahead. Over a third (36%) of business owners would back calls for Britain to remain in the Single Market and Customs Union, despite the Government’s pledge to leave both.

With near record-low levels of unemployment, over a quarter (27%) of SMEs say they are struggling to hire skilled workers, and 23 per cent say they have had to increase wages to retain existing staff. This issue is particularly challenging for those in the construction sector where more than a third (37%) say that hiring skilled labour is a concern.

With many firms reliant on overseas workers, there are legitimate anxieties in many industries that this issue will be compounded when the UK leaves the EU next year.

Add to this sustained uncertainty over a key issue such as skills, a heady mixture of rising unsecured consumer debt and rising insolvency levels, it is little wonder that some are advising businesses to dust-off their recession plans.

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