Despite getting through a period of uncertainty with the Scottish referendum and the General Election, small business confidence has failed to grow over the past six months, with optimism in some industries falling by 20 per cent.
Not so positive
According to Aon Risk Solutions and its Small Business Change Index, SME confidence has fallen significantly when compared to its last set of findings which were recorded in March.
Aon found that the proportion of SMEs with a positive business outlook for the next six months has fallen from 50 per cent to 48 per cent. The group also discovered that the amount of businesses anticipating difficult times ahead has risen by two per cent.
Which sectors are displaying the biggest fall in confidence?
The media, finance, accounting and construction industries are not displaying much confidence for the next six months.
There are some sectors that showed an increase in business confidence, including the booming IT industry. Retail replaced media as the sector where most SME decision makers were confident – although even here confidence was down from 55 per cent to 49 per cent.
Size really does matter
Why are so many businesses reporting a decrease in confidence? Aon suggests that the size of a business determines its success.
Its research found that larger SMEs were significantly more likely than their smaller counterparts to have a confident outlook for the next six months (65 per cent Vs. 38 per cent), although these larger enterprises were also more likely to expect modest growth over significant expansion in the months ahead.
Location is also a significant factor. Small businesses in London, the north west and the south east were most likely to have a confident outlook, whereas those in the south west, Wales and Scotland had the fewest businesses with a confident outlook.
During the General Election, it was predicted that small business confidence was low because of political uncertainty, but Aon Risk Solutions managing director Chris Lee-Smith is surprised that confidence hasn’t picked up since the Conservatives won a landslide election.
‘‘When we commissioned this research last spring ahead of the General Election, almost one in four UK businesses identified political uncertainty as a very real risk to overcome in the next 12 months,’’ commented Lee-Smith.
‘‘Six months on, it is a surprise to see that SME business leader confidence is at best static, with some significant swings of opinion prevalent in a number of key industry sectors. Businesses that embrace change and are looking to open new markets are most likely to be very confident, whereas confidence is notably more muted among those businesses that are placing most emphasis on maintaining their current position.’’
John Allan, national chairman of the Federation of Small Businesses (FSB), feels that low levels of small business confidence could be down to upcoming policy changes.
‘‘This report appears to mirror our own findings which found that although small businesses continue to increase headcounts, their confidence is not as strong as in previous quarters,’’ said Allan.
‘‘This may partly be down to a range of upcoming policy changes: the higher than expected minimum wage increases; auto-enrolment deadlines; and changes to how dividends are taxed. These three key changes will create challenges particularly for business owners on modest incomes.”