SMEs expect UK economy to fall into recession in 2019

Confidence among small and medium enterprises (SMEs) has declined by 5.6 points year-on-year, with UK businesses experiencing their least confident start to a new year since 2014, BFS said in its SME Confidence Tracker.

The loss of confidence has had a knock-on effect on investment decisions, with the average amount of capital SMEs plan to invest in their business falling for the fourth consecutive quarter – from £103,648 in Q1 2018 to £64,600 in Q1 2019.

This drop comes as an increasing proportion of businesses said they are holding back investment due to the uncertain economic environment within the UK, increasing from a quarter (26 per cent) in Q4 2018 to a third (33 per cent) in Q1 2019, the highest level since 2015, BFS revealed on Monday.

A similar proportion (30 per cent) cite that uncertainty arising from the UK’s exit from the EU is holding them back, indicating there has been an impact on UK business investment because of Brexit. 

"If SMEs are the warning lights of our economy, this quarter signals to us that they see trouble ahead. We typically observe a seasonal bounce in SME confidence at the start of a year, as businesses begin with renewed optimism. This year, the bounce was lower than ever before, highlighting how Brexit uncertainty is taking its toll on UK SMEs," Edward Winterton, UK CEO of BFS, said. 

Political uncertainty is acting as a brake on the economy, Mr Winterton explained. 

"It needs to end. Regardless of whether you supported leave or remain, Brexit has been an agonisingly slow process resulting in our SMEs pulling back on investment when our economy needs stimulus to grow," he judged. 

The data found that SMEs are calling for further support from the government to help them through Brexit. Over two-thirds (68 per cent) would like the government to introduce tax breaks for businesses, almost two-thirds (65 per cent) want lower business rates, and half (50 per cent) think the government should ensure that tariffs on goods to the EU are avoided.

"There is often talk of protecting the City of London from Brexit, but our SMEs need protection too. I hope the government will act to reduce the impact of Brexit on UK businesses," Mr Winterton added. 

Operationally, SMEs are facing other challenges too, BFS revealed, with almost a fifth (19 per cent) reporting that rising costs were their biggest challenge. While others believed increased competition from other firms (16 per cent) and late payment (16 per cent) were their biggest threats.