Brexit-driven rise in inflation and depreciation of the pound of particular concern to manufacturers
More than a fifth (22%) of UK SMEs say rising costs are their biggest concern in 2017, according to findings from Bibby Financial Services’ Q4 SME Confidence Tracker.
The number of businesses which see rising costs as a significant challenge has doubled over the past 12 months – a figure that Bibby says underline the impact of a Brexit-driven rise in inflation and depreciation of the pound.
The firm says these fears are of particular concern for manufacturers with almost a third (29%) citing this as their biggest challenge. Increasing competition (18%) and late payments (11%) were other key challenges that SMEs highlighted as impacting their businesses.
As a consequence of rising costs, investment intentions have taken a dive as businesses adopt a more cautious approach. Over the next three months SMEs plan to invest an average of £49,237; less than half the level of intended investment in Q2 2016 (£101,919). Over the same period, investment from manufacturing businesses has fallen by 150%.
David Postings, global chief executive of Bibby Financial Services, said: “Smaller businesses are becoming increasingly concerned about rising costs. We’re seeing more SMEs looking towards efficiency, rather than investment for growth at the start of 2017.”
“Rising costs fuelled by inflation and the drop in the value of the pound is a double edged sword for many businesses. The manufacturing industry has recently grown at the fastest rate for 25 years, fuelled by an uplift in exports due to the pound’s depreciation, but manufacturers that are reliant on importing goods and selling solely in the UK will see margins being significantly eroded.
“These businesses are facing the challenge of maintaining profitability while remaining price competitive. This equation is causing a headache for many businesses and we are seeing many SMEs start to tighten their belts and pull back investment.”
The current economic environment is also weighing heavy, giving owners a crisis of confidence. Over a quarter (28%) of SMEs said that they were holding off on investing in their businesses due to concerns about the UK economy. Meanwhile over a fifth (22%) are not investing due to concerns about the wider EU economy.
While not using their revenues to invest, a quarter (24%) of businesses said that they planned on building up their cash reserves instead.
Postings added: “In little over six months we have seen investment intentions from SMEs halve. Faced with a heady cocktail of the impact of Brexit and an increasing lack of confidence, businesses are taking a more cautious approach. In some instances, perhaps worryingly, it appears that they could be bedding down to see out this uncertain period as they steel themselves for a bumpy ride as we near the self-imposed deadline by the Government to trigger Article 50.
“While exporters are seeing a boost in overseas sales, this benefit only goes so far, as many businesses do not look overseas for opportunities. The UK is still too reliant on a consumer driven economy that has all the signs of slowing down. This prop won’t last for long.”