The health of SMEs in Scotland has declined in the first quarter of 2018, according to latest research by CYBG in partnership with Centre for Business and Economics Research (Cebr).
The report has revealed that business health in Scotland has fallen to 36, due to businesses reporting revenue increases falling to the lowest level since data collection began in 2014.
The annual rate of net business creation also declined by one percentage point to 3.6 per cent between Q4 2017 and Q1 2018, and while employment continues to expand in Scotland, the annual growth rate remains significantly below the national average. Recent data shows that productivity in Scotland – as measured by output per hour worked – declined by 1.9 per cent in real terms over 2017, the second consecutive yearly fall.
Productivity growth in Scotland is constrained by low levels of business investment and research and development spending compared to the rest of the UK.
The report is designed to measure SME business performance and the business and macroeconomic environment within which SMEs operate. At a UK level, the overall health of the UK’s SMEs could be improving, as the Index increased in Q1 2018 by 3.4 points to 47.4, ending five consecutive quarters of decline. Although the Index remains well below the levels seen in past years.
It also highlights that the contribution of new SME workers to the UK economy is expected to drop by more than half over the next five years, raising concerns about the strengths of the UK economy in the post EU-referendum world. SMEs’ new hires in each year between 2010 and 2017 added an average of £10.9 billion per annum to the UK’s gross value added (GVA) figure.
However, with unemployment already at historic lows, SME hiring is predicated to fall in the coming years as the wider economy slows down and wage growth begins to accelerate. It is forecast that the contribution of new SME hires to GVA could more than half to £4.8 billion a year between 2017 and 2022.
Gavin Opperman, group director customer Banking at CYBG, said: Despite a slight drop in the Index in Scotland, and the concern around SME hiring slowdown, our SME Health Check Index does show signs of optimism and after five consecutive quarters of decline, our headline reading rose in the first quarter of 2018. However, it’s still a mixed picture and the Index is well below the level we have seen previously.
“We are pleased that SMEs are hiring and business confidence has improved in most UK regions, despite the slowest quarterly GDP growth in more than five years. Lending has also increased, which is positive for us as we are committed to supporting SMEs.
“However the projected slowdown in SME hiring is a wakeup call. SMEs contribution cannot be underestimated. We must understand the pressures facing them and provide the right environment and support to help them flourish and continue being a major employer of the UK’s workforce. In particular, we must give our small firms the access to talent they need post-Brexit and address how these firms can be incentivised to invest in skills.”