UK Mid-market Firms Closing Gap on German Mittlestand

UK mid-market companies are producing more ‘growth champions’ – firms posting growth of 10% in more over the past year – than the other ‘big four’ Western European economies, according to GE Capital.

Its report on European mid-market firms finds that those based in the UK are close to matching the revenue growth of the German small to medium-sized enterprises (SMES) or ‘Mittelstand’. However, strong sales growth of £55.4bn in the last year has yet to translate into equivalent jobs growth. The UK mid-market created an estimated 67,000 new jobs in the last year, but could have created an extra 80,000 jobs had it matched German job growth.

The research also shows that the UK is home to the highest proportion of ‘growth champions’ across major Western European markets. These firms, that have achieved exceptional revenue growth of more than 10% over the past year, represent 17% of UK mid-market firms, compared to 13% in Germany, 11% in France and 13% in Italy.

“Our research shows that mid-market firms really are the drivers of UK gross domestic product (GDP) and are absolutely essential to future economic prosperity,” commented Ilaria del Beato, chief executive officer (CEO) of GE Capital UK. “Increased confidence is translating into investment decisions and will hopefully start to be matched by employment growth as well.”

The average UK mid-market firm, defined as having annual turnover of £15m-£800m, has grown by 2.3% in the last year, compared to 2.4% in Germany, 1.7% in France and 0.2% in Italy. Although these growth figures represent a reduction on the previous year, they highlight the UK mid-market’s relative resilience compared to the other large European economies.

UK firms are also the most bullish about the next 12 months, predicting 2.1% growth compared to 1.7% in Germany, 1.4% in France and 0.5% in Italy. Confidence in future growth is reflected in strong investment plans; on average 87% of UK mid-market firms are planning to either increase investment or maintain investment at existing levels over the next year.

Other key findings from the report include:

• Just 1.67% of UK mid-market companies provide over one third of private sector GDP, revenues and employment.

• Keeping business costs down is the number one strategic challenge for UK mid-market firms, perhaps explaining the lower employment growth.

• Mid market firms in the UK perceive business costs, the state of the overseas economy and regulation abroad to be the most significant barriers to exporting to new markets.

“The UK mid-market is confident of future growth, however there are elements of the UK business ecosystem which need further attention in order for it to reach its full potential,” said the report’s author, Professor Stephen Roper of Warwick Business School. “A clear regional divide is evident, as firms in the South are growing at a quicker rate than Northern counterparts. This needs to be addressed to enable the rebalancing potential of the mid-market to be achieved.”

The UK mid-market’s overall strong performance masks considerable regional differences. Growth in the South of England reached 3% last year, making it the highest performing region across all four of Europe’s largest economies, whilst firms in the North of England only grew by 1.2%.

John Cridland, director-general of business lobby group the Confederation of British Industry (CBI), commented: “We’ve been banging the drum for medium-sized businesses and the important role this forgotten army will play in the UK’s economic recovery. Though small in numbers, these firms are big on impact, punching well above their weight in terms of revenue contribution and job creation.

“To maximise their growth potential the government must ensure they can access the skills they need by giving employers more control over the design and funding of apprenticeships, and improving access to export support schemes so they can tap into fast-growing overseas markets. This report is a timely reminder of the importance of medium-sized businesses to the UK economy.”

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