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SME optimism high, though north-south split emerges

Peter Gallanagh

Peter Gallanagh: ‘firms are adjusting their business models’

Contrary to reports at the turn of the year of widespread failures among SMEs, almost nine in ten (87%) expect to be trading in a year”s time, according to new data.

Of those surveyed by SME accountancy firm Azets, 68% feel positive about the UK’s economic outlook with more than 56% expecting profits to increase.

More than half (56%) of SMEs expect to recruit more staff during the next year and 60% intend to invest in the business, while 73% of those SMEs with staff on furlough intend to return all on to the payroll.

However, in a sign of a north-south divide, fewer businesses in Scotland (60%) and in the North of England (59%) feel positive about the UK’s economic outlook compared to 71% in London and the South. 

As the UK went into lockdown last year, the government stepped in to support businesses with 71% of SMEs feeling well supported by the policy programme.


Peter Gallanagh, CEO for Scotland and the North, said: “There is a robust level of optimism across the SME community and the investment and recruitment intentions are very encouraging. 

“The disparity in optimism between Scotland/the North and The South reflect the heavy weighting towards the service sector in the South, which is showing stronger and faster signs of recovery. 

“Hopefully, recovery in confidence in Scotland and the North will accelerate as the economy strengthens across the regions, entrepreneurs start to invest and employment increases.

“Clearly there are wider challenges with shortages of skilled labour, soaring raw material costs and the threat of inflation. 

“SMEs will be adjusting their business models and considering innovative ways to reduce costs and their dependence on single supply chains.

“This is sound future-proofing and will help ensure they are well placed to capitalise on growth opportunities.”

Other key findings from the report:

  • Financial health, adapting their business models and employee wellbeing were ranked as the top three priorities by UK SMEs.
  • The economy, Covid-19 and competition were the top three threats with Brexit a key issue for SMEs outside London and the South-East. 
  • Only 20% intend to borrow over the next year.
  • Top opportunities are business models, the economy and international trade 
  • 34% of UK SME business leaders say they have a poor work/life balance 

Chris Horne, group CEO of Azets, concluded: “Our first SME barometer was conducted against an unusual backdrop. After a year of deep crisis and upheaval; with the vaccination programme accelerating and lockdown restrictions beginning to ease, the prospect of economic recovery feels within our grasp.

“The research highlighted a stubborn optimism among SMEs and a pragmatic awareness of the need to adapt to the ‘new normal’ post-covid. 

“The biggest opportunity and biggest threat for SMEs is using technology and flexible working to adapt their business model.

“Those who get this transition right will be in a better position to survive and thrive. Given the importance of ensuring that the SME sector continues to prosper, these findings point to areas where further government policies are vital in delivering the support businesses need right across the UK.”

Business activity recovering says NatWest

Levels of business activity continued to recover across all regions of the UK during July, albeit with rates of growth generally pulling back from the highs seen in the second quarter, latest Regional PMI data from NatWest showed.

Elsewhere, firms across the majority of areas reported unprecedented cost increases, with charges for goods and services generally rising sharply as a result. 

The PMI Business Activity Index is the first fact-based indicator of regional economic health published each month, tracking the monthly change in the output of goods and services across the private sector. A reading above 50 signals growth, and the further above the 50 level the faster the expansion signalled.

Firms in all parts of the UK remained upbeat about the year-ahead.

Those in the South East reported the strongest optimism, followed by Yorkshire & Humber. However, the latter, like two-thirds of the regions monitored, recorded lower expectations than in June. Sentiment was weakest in Northern Ireland, where it dipped to a five-month low. 

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