UK SME Confidence Hit by Double-dip Recession, Global Economic Worries and Access to Credit

The confidence of Britain’s small and medium-sized enterprises (SMEs) has nosedived. The latest data from the Western Union Business Solutions International Trade Monitor (ITM) revealed UK SME confidence has re-entered negative levels.

In the period March to May 2012 rising SME confidence in the UK economy dropped from 58% in April (the highest figure recorded since June 2011) to 49% in May. The fall followed the announcement that the UK is in a double-dip recession. SME importers and exporters in London were the hardest hit, with their confidence dropping from 60% to 40% over the same period.

Neil Graham, managing director, UK, for Western Union Business Solutions, said: “SME confidence has dropped from the cautious rebound we saw last quarter. News of the UK entering a double-dip recession was a big blow; London confidence in particular has taken a bath. The fall in confidence levels back to negative territory is very worrying for the UK economy. SMEs have to contend with the prospect of a return to recession at home and increasingly turbulent markets abroad.”

Credit Woes

Access to credit continued to add to SME worries; the ITM revealed that 81% of SMEs have seen no improvement in credit availability. The launch of the UK government’s National Loan Guarantee Scheme seems to have made little impact. Just over half (52%) of SMEs are aware of the programme, an improvement of 11% over awareness of Project Merlin last quarter. Seventy-seven percent believe that it will make no difference in their ability to obtain credit.

Additionally, only 17% of SMEs believe credit in general is easier to obtain now than it was a year ago while their likelihood to renew or request lines of credit has fallen to 10% – the lowest figure recorded thus far.

Graham continued: “The continued lack of credit available to small businesses is a real challenge. Despite the government’s efforts, over 80% of SMEs haven’t noticed an improvement in credit over the last year – a year that has not been noted for great access to credit in the first place. Liquidity remains a big challenge for small businesses as their cash flow continues to dry up.”

Hopes of Olympic Boost Fail to Materialise

SMEs do not expect to benefit from the Olympic Games, with only 15% believing they will have a positive impact on their business. Two-thirds (67%) believe they will have no impact, with 8% expecting a negative one. SMEs in London were slightly more optimistic, with 20% indicating the Games would have a positive impact on their business. Sixty percent of the capital’s SMEs expect no impact, 11% a negative one.

Exporters with Customers in Emerging Economies Increase

Despite falling confidence in trade conditions there are signs the government’s efforts to boost exports are yielding results, particularly in the manufacturing and wholesale industries.

Exporters with customers in Africa rose 6% compared to the previous quarter and those with customers in India increased by 4%, indicating exporters are looking for opportunities outside of the eurozone. In addition to this, exporters with customers in Brazil and other countries in South America recorded a 3% rise.

Graham added: “The government’s efforts to boost exports are welcome and seem to be yielding positive results. With continuing economic turmoil on the cards, however, our customers are looking for ways to protect themselves as much as possible. It’s no wonder that they are feeling anxious. The situation in Europe is precarious and what happens there will of course impact the global economy.”


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