The latest SME Growth Tracker from Capital Economics shows a fall in business confidence among SMEs – but finds that they’re not allowing their fears to affect their ambitions.

Business Confidence FallsBusiness Confidence

Leading economic research company Capital Economics says that their SME Growth Tracker 2017 Annual Report shows the confidence of SMEs has fallen from this time last year.

The report, which was commissioned by Enterprise Nation and Amazon, was based on the results of a YouGov survey of over 1,000 SMEs. Its 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.

Brexit Not Delaying Business

When asked about what they perceived as the greatest risks to growth over the next year, SME owners named political uncertainty and higher price inflation. However, they seemed positive 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.

39% said they expect Brexit to negatively impact revenue compared to just 12% who believe it will have a positive impact. The areas seen to be most likely to be negatively affected by Brexit were supply costs (51%), profits (41%) and jobs (22%).

Despite this, 73% of SMEs said they have not delayed any business decisions as a result of Brexit.

“We’ve seen noticeable changes to the confidence of SMEs after key moments in the political calendar over the last year,” said Mark 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.”

Post-Brexit Britain

When asked about their hopes for post-Brexit Britain, SMEs believed the Government should prioritise negotiating a new trade deal with the European Union over any other region or country. 56% of exporting SMEs said the EU was one of the regions that contributed most to their export revenue in the past year.

Small business owners were also questioned about which of the EU single market freedoms was most important to them. Free movement of goods was cited as the most important (53%), followed by free movement of services (52%), free movement of capital (45%) and free movement of people (38%).

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.”

Causes for Confidence

So, which SMEs are the most confident about their business future – and why?

It seems that what confident SMEs have in common is their embracing of e-commerce and technology. E-commerce users see it as a way to boost revenue and productivity, naming investing more in digital tools as the second most important way to boost 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.
  • 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) and forecast an increase of 0.6% in digital export sales in the next year., increasing by 0.6 per cent in the next twelve months.

“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.”