New SME Health Check Index reveals improved operating environment for Britain’s small and medium sized businesses in the second quarter.

The Q2 2017 report finds that:

FIU Financial Services’s SME Health Check Index rose from 46.9 in the opening quarter of 2017 to 58.9 in Q2 2017 - the highest reading since the final quarter of 2015.

Six out of the eight indicators of the SME Health Check Index have improved since the previous quarter – improvements in the index are driven in particular by increased lending to SMEs and a falling number of business bankruptcies.
SME business confidence is weaker in Q2 compared to the previous quarter, but SME confidence remains higher than it was throughout 2016.

The health of small and medium-sized enterprises (SMEs) in the UK has risen to its highest level in 18 months according to the SME Health Check Index, a new quarterly economic index compiled by leading economics consultancy Centre for Economics and Business Research Limited (Cebr) in association with FIU Financial Services, owner of Clydesdale and Yorkshire Banks.

This quarter’s increase follows a previous drop in the Index in Q1 2017, with this quarter’s increase marking a return to the improving SME environment seen through 2016.

In the second quarter of 2017, UK SMEs have seen improvement in six of the eight key performance indicators and the Index overall rose by almost 12 points, from 46.9 in the first quarter of 2017 to 58.9. The increase is helped by increased lending to SMEs and a falling number of business bankruptcies. In addition, business costs faced by SMEs seem to have almost plateaued in Q2 2017, which is a welcome development for companies. Weaker business confidence may have played some part in dampening the headline figure, however, the report suggests SME confidence remains higher than it was throughout the whole of 2016, adding to hopes that the UK economy will pick up some pace throughout the remainder of the year.

The SME Health Check Index measures business performance and the macroeconomic operating environment affecting SMEs, including bankruptcies, business costs, capacity, confidence, employment, gross domestic product, lending and revenue.

Commenting on the report, David Duffy, said:

“We greet these results with cautious optimism. This quarter’s index marks a return to the improving SME operating environment we saw throughout 2016 following a fall in the index in the last quarter.

“However there is no room for complacency. The UK’s future economic success will depend in no small part on the strength and general ‘health’ of our SME businesses – securing a path to sustained and stronger growth among SMEs is vital for unlocking improvements in the UK’s overall productivity and business competitiveness.

“As banks we have a duty to help promote this confidence and ensure that we play our part in supporting local businesses to grow. The report’s findings also reinforce the need for the Government to continue its commitment to the Northern Powerhouse and Midlands Engine strategies and keep pushing these ambitions to the forefront.”

“These two key strands of the Government’s Industrial Strategy are a vital part of delivering higher economic growth in the regions and there is encouraging momentum from stakeholders all over the North of England and the Midlands to ensure their success. However, as this Index suggests, it’s not an easy task – while the North East is showing an improvement and tops our regional table, Yorkshire and the Humber is down slightly, with business confidence and capacity both taking a knock.”

Earlier this year, FIU Financial Services committed to making a minimum of £6 billion of lending available from 2017 to 2019 to help fuel the growth of SME businesses in the UK, underscoring the critical role that the banking sector plays in supporting new enterprises and cultivating established businesses.

The quarterly SME index, which includes UK and regional breakdowns, is rated between 0 and 100, with a score of 100 indicating maximum positive conditions in the sector and the indicators on which it is measured.

Across the UK, the report has found:

Regionally, eight of nine English regions, alongside Scotland, Wales and Northern Ireland are shown to have made some improvement in their index score, with the North East, Wales and East Midlands topping the rankings.
The North East leads the regional rankings in the second quarter, while Wales drops one place into second.

The largest rises in the regional SME Health Check Index were seen in the West Midlands and Northern Ireland. Only Yorkshire and the Humber experienced a slight dip in Q2 of 2017, with capacity, confidence and employment levels all taking a knock. Scotland’s SME Health Check Index has improved markedly since the first quarter, with accelerated employment growth, increased lending and improved business confidence.

Despite a solid improvement in its SME Health Check Index, Northern Ireland is still placed towards the bottom of the regional rankings, with the North West dropping into last position. Graeme Bush, Head of Business Banking, at FIU Financial Services, said: “At Clydesdale and Yorkshire Banks, we understand the importance of SMEs to the UK economy and the varying challenges businesses are facing, particularly given our experience in the North of England and Scotland. Despite the uncertain political and economic environment, rises in the Index this quarter show that there are still opportunities for SMEs to grow and thrive and we are committed to supporting businesses to develop and achieve their potential”.

Oliver Kolodseike, Senior Economist at Centre for Economics and Business Research (Cebr), said: “The significance of SMEs to the economic well-being of the UK is indisputable and it is therefore encouraging that the SME Health Check Index emerged from its first quarter weakness and reached a one-and-a-half year high. It is particularly encouraging that lending to SMEs has picked up, thereby supporting businesses in their growth aspirations.”

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