Small and medium sized businesses are facing a triple whammy of threats, according to the UK’s largest challenger bank.
Representing 5.7 million enterprises or 99.9 per cent of total businesses in the UK’s private sector with a combined turnover of £1.9 trillion, SMEs are are accepted as the heartbeat of the national economy.
However, Clydesdale Bank parent CYBG has revealed that the sector recorded the worst business health reading since 2014, as a shortage of skilled workers, rising costs and a lack of borrowing take their toll.
The research shows the UK’s skills shortage is leading to an estimated £7.3bn annual loss in sales for SMEs, equivalent to approximately 252,000 new jobs on an average UK salary, and worth around £97 million in corporation tax revenues for the Treasury.
The latest research by CYBG in partnership with the Centre for Business and Economics Research (Cebr) and YouGov, show’s CYBG’s quarterly SME Health Check Index dropped to a score of 42.0, down 48 per cent since 2014 and the fifth consecutive quarterly fall, suggesting a worsening business and macroeconomic environment since the EU Referendum in June 2016 and the ongoing Brexit negotiations.
In Scotland, the SME Health Check Index fell five points to 43 in the final quarter of 2017. An increase in the rate of net business creation contributed positively to the overall SME Health Check Index score.
This was driven by a sharp fall in company dissolutions from 6,487 in Q3 2017 to 4,476 in Q4 2017 – a 45 per cent decrease.
However, the improved rate of net business creation was offset by an increase in the number of SMEs operating below capacity. Business confidence was also down in Q4 2017, while the rate of employment growth fell back.
According to the Index, the costs faced by the UK’s SMEs grew at an annual rate of 2.6 per cent in the fourth quarter of 2017, with one of the key drivers being a rise in employee costs, suggesting historically low unemployment may be beginning to push up wages.
A key driver behind the Index fall, figures show that SMEs are borrowing less, with lending down by 3.7 per cent to £92.5 billion in the year to the end of Q3 2017, the largest drop since the Index began in 2014. In terms of the last quarter for which data is available (Q2 to Q3 2017), bank lending to SMEs fell by £1.9 billion, or 2 per cent year on year.