Background scene setting

At the beginning of 2016:

5.5m private sector businesses in the UK, up 97k from 2015, and up 2m since 2000. 99.9% of these are SMEs

The majority of growth has been from non-employing (“micro”) businesses. They make up 89% of the increase since 2000, and 86% of the 2015 increase.

The make-up of small businesses over the last year has changed as follows:

Limited companies: up 8%

Partnerships: down 4%

Sole trades: down 0.3%

 

Q4 2016 Business Confidence Statistics

The FSB run a report every quarter on business confidence. As with every report of its type, the devil is in the detail, not the headline statistics, which I’ve tried to summarise below. It’s based on a poll of 6,135 businesses, of which they had a 20% response rate. It was taken at the end of October 2016.

 

Business Confidence

Q4 2016                      +8.5

Q3 2016                      -2.9

Q2 2016                      +4.3

Q1 2016                      +8.6

 

Whilst on the face of it, this is a “return to pre referendum confidence”, the reality is that there is an underlying year on year change of -13.2, and from what I can see it is down from a high in recent years of +41.0. These recent years include the last recession, but nothing before.

Confidence is greatest in the Midlands and North West, but negative in Scotland and London (perhaps related to the voting patterns at the Referendum). No data is available for NI.

Businesses with growth plans are down to 53%, the impact and cost of exchange rates are cited as a major cost of business by 28% of respondents, and only 6.2% expect an increase in profits over the next 3 months.

Credit availability has also become more expensive. According to the FSB’s summary, more businesses are being offered rates over 11% and less businesses are being offered rates under 4%. However, cutting through this dramatic headline, 55.5% of businesses were offered rates less than 4.99%, vs 52.2% in Q4 2015.

Confidence levels varied by sector. The sectors most impacted were vehicle repairs, accommodation & food, transport & storage, and admin & support services.

 

Economic outlook

According to Scott Corfe, director at CEBR, a recession in 2016 was definitely avoided; however 2017 may prove to be more difficult, with growth predicted at less than 1%.

 

The main driver of this is inflation, which is set to exceed the BoE targets, largely due to the depreciation in sterling.