Boosting business confidence
The Chancellor Philip Hammond delivered an upbeat update on the health of the UK economy as part of his first ever Spring Statement this month. However, with Brexit looming on the horizon, the Government must provide even more certainty around the future trade landscape if small and medium sized enterprises (SMEs), the key sector in driving economic growth, are to feel confident in the long term.
As part of the statement, the Chancellor announced that the Office of Budget Responsibility has revised upwards the GDP forecast for 2018 given in the Autumn Budget from 1.4% to 1.5%. This is positive news for UK SMEs and while GDP growth is forecast to slow slightly in 2021 and 2022, it’s important to take the positives from this messaging and to stay optimistic about opportunities open to British businesses.
Business confidence is essential in driving economic growth. According to our SME Growth Watch research, 51% of SMEs feel optimistic about their industry’s long-term economic prospects. At a sector level, the study shows that transportation and distribution SMEs are the most optimistic (60%), followed by hospitality and leisure (57%) and finance and accounting (56%).
While we recognise that confidence levels fluctuate, given the unprecedented amount of change the UK is facing, we believe this is encouraging. The Government should harness this optimism and ensure they do everything possible to support SMEs in identifying and achieving their growth ambitions for 2018. They can do this by helping to remove or reduce barriers to growth.
So, what is preventing some smaller firms from growing and developing? According to our research, over two in five (42%) of SMEs see economic uncertainty as their main barrier to growth, followed by a third (33%) stating competition, and a further 25% stating that regulation and lack of consumer spending is a significant barrier.
As a specialist bank we work with businesses across a number of sectors and regulation is often cited as a concern. Red tape can bind businesses and it reduces productivity.
For instance, according to research from the Federation of Small Businesses, small businesses spend on average £5,000 and three working weeks every year on tax compliance. Indeed, in our recent SME survey*, when asked what tasks they were most likely to put off, completing tax forms and legislation materials came top with 29% of the vote. Streamlining official processes is a key component of a future growth strategy.
Despite the barriers that stand in their way, SMEs are resilient and will continue to drive economic growth. Indeed, our research found SMEs in the top 10 UK cities are forecast to grow their economic contribution significantly over the longer term, adding £241bn to the UK economy by 2025, a 19% increase on the £202bn contributed in 2016. In order to achieve this, they need our support.
2018 remains a challenging time for British businesses, however, SMEs need to carry on investing and innovating to support growth. It’s down to the Government to help create the right conditions to boost business confidence and help ensure smaller businesses continue to prosper.