Capital Economics SME Growth Tracker finds revenue, jobs and profits to accelerate despite lack of SME confidence in business conditions

SME Confidence Index remains negative, with high inflation and political uncertainty seen as the biggest risks in the year ahead

73 per cent of SMEs have not delayed any business decisions as a result of Brexit; However, 39 per cent of SMEs say Brexit will negatively impact revenue compared to 12 per cent saying it will have a positive impact

E-commerce seen to be key to SMEs boosting revenue and productivity, whilst Scottish SMEs surveyed were found to be the most likely to use such digital tools

London – Thursday 12th October – Capital Economics, one of the world’s leading independent economic research companies, today announced findings from its SME Growth Tracker 2017 Annual Report, which shows that the confidence of SMEs has fallen from this time last year.

The report, commissioned by Enterprise Nation and Amazon is informed by a comprehensive YouGov survey of over 1,000 small and medium sized enterprises (SMEs) and provides an assessment of the health and confidence of British SMEs. Now in its second year, the annual report – and the quarterly tracker updates - monitors key financial and economic trends of businesses that account for 60 per cent of UK private sector employment.

The report’s flagship metric - the SME Confidence Index score for their own company – declined to -8, down from +5 when surveyed in September last year. The SME Confidence Index score for the UK economy is also down from -13 in September 2016 to -22 in September this year. This lack of confidence was reflected across nearly all of the UK with all regions bar the West Midlands expecting business conditions for their own company to deteriorate over the coming year.

Despite weak confidence, SMEs remain upbeat about their own growth prospects, forecasting +1.6 per cent revenue growth, +0.6 per cent jobs growth, and +0.9 per cent profits growth over the coming 12 months.

“We’ve seen noticeable changes to the confidence of SMEs after key moments in the political calendar over the last year,” saidMark Pragnell, Chief Project Economist at Capital Economics. “A year ago shortly after the EU referendum vote, SME confidence in their own businesses was positive. However, over the last 12 months SMEs have witnessed a series of key political moments, from the triggering of Article 50 through to the snap General Election, which may have contributed to the swing of confidence from +5 in September last year to -8 now. It however remains encouraging that they continue to forecast positive revenue and jobs growth in the year ahead.”

The greatest perceived risks to growth over the next year according to small business owners are political uncertainty and higher price inflation (both with a score of 3, on a scale of 1 to 5 where 1 is no risk and 5 is a major risk). Whilst 73 per cent of SMEs say they have not delayed any business decisions as a result of Brexit, on balance, SMEs say in 12 months’ time that Brexit will likely have more of a negative impact (39 per cent) than positive impact (12 per cent) on revenue. Supply costs were seen to be most likely to be negatively affected by Brexit (51 per cent) followed by profits (41 per cent) and jobs (22 per cent).

Looking ahead to post-Brexit Britain, SMEs believe the Government must prioritise negotiating a new trade deal with the European Union over any other region or country, with over half of exporting SMEs (56 per cent) saying the EU was one of the regions that contributed most to their export revenue in the past year.

Small business owners also reflected this sentiment when asked which of the EU single market freedoms was most important to them. Free movement of goods was cited as the most important (53 per cent of SMEs said this is “important” or “very important”), followed by free movement of services (52 per cent), free movement of capital (45 per cent) and lastly free movement of people (38 per cent).

Emma Jones MBE, founder of Enterprise Nation, which represents over 70,000 small businesses in the UK, said: “The small business owners I speak to every day are generally positive, upbeat entrepreneurs who thrive in the face of a challenge and are flexible enough to adapt to changes in the political and regulatory landscape. However, this doesn’t mean they should be taken for granted, so I hope the Government looks closely at these views from the small business community and takes them into consideration throughout the Brexit process.”

SMEs that use e-commerce are more confident, and see it as a way to boost revenue and productivity. SMEs that use e-commerce expect revenue growth of +1.8 per cent in the coming year compared to +1.2 per cent for those that don’t. In addition, SMEs who both export and use e-commerce say digital sales will account for over a third of their export revenue in the coming year (35 pence in every pound). They see digital export sales increasing by 0.6 per cent in the next twelve months. Meanwhile, investing more in digital tools was cited as the second most important way to boost productivity.

“It’s clear that embracing the digital economy is crucial for small businesses looking to mitigate risks to their business and grow at a faster rate,” said Doug Gurr, UK Country Manager, Amazon. “The annual report shows that small businesses want the ability to easily export to the EU and beyond. As a global business that provides UK businesses with access to international opportunities, we’ll continue to focus on tools and services that help SMEs export to the EU and around the world long-term.”

Scotland was found to have the highest percentage of SME users of e-commerce with 68 per cent of SMEs surveyed saying they use digital tools and services to make sales. Wales and the East Midlands came second (67 per cent) whilst London SMEs (62 per cent) and SMEs in the North East (59 per cent) showed the lowest use.

A full copy of the SME Growth Tracker Annual Report is available here.

- Ends -

Notes to editors

For more information, please contact:
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E: pressoffice@amazon.co.uk 
T: 020 3680 0888

Notes to Editors

• The SME Growth Tracker is commissioned by Amazon UK and Enterprise Nation. However the views expressed remain those of Capital Economics and are not necessarily shared by Enterprise Nation and Amazon UK.
• While every effort has been made to ensure that the data quoted and used for the research is reliable, there is no guarantee that it is correct, and Capital Economics Limited, Enterprise Nation, Amazon UK, their subsidiaries and affiliates can accept no liability whatsoever in respect of any errors or omissions. The SME Growth Tracker is a piece of economic research and is not intended to constitute investment advice, nor to solicit dealing in securities or investments.
• All figures, unless otherwise stated, are from YouGov Plc. or are calculated by Capital Economics using figures from You Gov Plc. Total sample size was 1,031 senior decision makers in SMEs. Fieldwork was undertaken between 17th August 2017 and 1st September 2017. The survey was carried out online. The figures have been weighted and are representative of all Great Britain businesses in terms of size (i.e. number of employees). Numbers may not add up due to rounding.

Capital Economics SME Growth Tracker: Confidence Index scores
The Confidence Index score is calculated on the basis of responses to the question: "Do you think overall business conditions (e.g. economic growth, customer demand, employment etc.) will have improved, deteriorated or will have stayed about the same for my company?" The Confidence Index score would be +100 if every SME expected business conditions for their company to improve significantly and -100 if every SME expected them to deteriorate significantly. The scores allocated to each answer were: +100 for "significantly improved", +50 for "somewhat improved", 0 for "stayed about the same", -50 for "somewhat deteriorated" and -100 for "significantly deteriorated".

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