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Hitachi Capital Business Finance

SME confidence holds firm ahead of Christmas period

For the first time this year, small business confidence has held firm from one quarter to the next – with marketing services sectors seeing growth forecasts rise on Q2 levels.

After the Government announced its three-tier Covid restrictions, new research suggests the avoidance of a second national lockdown and certainty of direction until March has had a positive impact on UK small business confidence.

The findings come from a rolling study from Hitachi Capital Business Finance that has tracked small business growth forecasts every quarter for the last six years. Before Covid-19 struck – and even during the period of the Brexit vote – the percentage of small businesses predicting growth for the three months ahead stayed at between 36-39% for six consecutive quarters.

In April 2020, this crashed overnight to just 14% of small businesses predicting growth. 

The UK’s re-emergence from lockdown in July 2020 saw a sharp resurgence in confidence, with the percentage of small business owners predicting growth for the next three months doubling to 27%. The latest data conducted this week by Hitachi Capital reveals that the percentage of small businesses predicting significant and modest growth remains unchanged since summer months (27%). Further, the Q4 data reveals the third consecutive quarter where the percentage of small businesses fearing collapse has fallen – down from a high of 29% in Q2 2020 to a current figure of 12% for Q4 2020.

Joanna Morris, Head of Insight at Hitachi Capital Business Finance, said: “Despite the changed context from the summer months, with Covid numbers now again rising sharply, our data suggests small businesses are reacting positively to the current circumstances. The avoidance of national lockdown and the consensus that there will be restrictions through until March has at least given small business owners a degree of certainty against which to plan. 

“Our figures for 2020 show that small business confidence has had sharp rises and falls since the pandemic struck. Our new research conducted the day after the Government’s announcement on three-tier restrictions gives the first reaction from the small business community. The stabilising of confidence levels between Q2 and Q3 is a really important development as it suggests smaller enterprises (that can operate) are adapting to the new reality – and accept the prospect that we may all be in for a long-haul fight against Covid.” 

By sector the research also gives a welcome boost for the high street. Ahead of the critical Christmas period, there was a marked rise in the proportion of retail small businesses predicting growth (up from 27% to 35% in three months). The property and marketing services sectors also saw growth forecasts rise on Q2 levels.  

Conversely, growth forecasts in manufacturing fell sharply (down from 30% to 23% in three months) – and the hospitality sector remained in a serious position; here only 18% of small business owners predicted any form of growth, whilst 53% predicted contraction. Overall 29% of hospitality sector small businesses predicted they would struggle to survive, more than double the national average (12%).

Half of small marketing businesses predicting Q1 growth

Two in five small business leaders (39%) predict growth by 31 March – the highest level for 18 months, according to new research from Hitachi Capital Business Finance.

By industry sector, this quarter sees a rise in growth outlook registered across the board in all but two sectors, with a significant upturn of growth projections in real estate (49%), IT and telecoms (49%), legal (47%) and media (46%). 

In recent weeks, there has been widespread speculation on the likely impact of Brexit on the UK business community. The new data suggests smaller businesses are more likely to see uncertainty as an opportunity. Seasonal businesses, those that live with change and the need to adapt on a regular basis, are more likely to predict growth for the months ahead (40%). Also, small firms that invest in their technology assets are more likely to foresee opportunities to adapt and grow (47%).

Regionally, small businesses in the East (43%) join London (47%) and the North West (45%) as having the most businesses with a positive outlook for the months ahead. Over the last 12-months, there has been a significant upturn in growth predictions in London (rising from 36% to 47%), the South West (from 29% to 38%) East (28% to 43%). In contrast, small enterprises in Wales and Scotland were the least likely to predict growth.

Interestingly, older businesses (those that have been trading the longest) demonstrate the biggest surge in growth outlook, suggesting a willingness to adapt to change. The ‘confidence gap’ between younger and mature businesses shows clear signs of closing. 

Percentage of businesses predicting growth to 31 March by age of business (how many years it has been trading)

 Less than 5 years5-10 years10-20 years20-35 years35+ years
Q1 202045%36%38%34%37%
Q4 201945%38%34%24%26%
Q1 201949%34%33%30%30%

Gavin Wraith-Carter, Managing Director at Hitachi Capital Business Finance said: “As the UK economy enters a new chapter, the latest findings from our quarterly tracking research suggest that UK small businesses are starting a new year, a new decade and a new economic era with a positive outlook. What is heartening is the diversity of this confidence, which spans regions, sectors and older businesses modernising.“At Hitachi Capital Business Finance we are producing a new series of training and support guides to help small business manage their enterprises through the Brexit transition period. In addition, our smart funding solutions give small businesses greater flexibility in the way they manage their cashflow and help their enterprises through seasonal highs and lows. The UK economy is going through a period of uncertainty – at Hitachi Capital Business Finance we are helping small businesses to live with uncertainty and to see it as an opportunity to innovate and grow.”

Additional Tables Percentage of businesses predicting growth to 31 March by sector

Percentage of businesses predicting growth to 31 March by sector

 Q1 2020 Net % that predict growthQ4 2019 Net % that predict growthQ3 2019 Net % that predict growth Q2 2019 Net % that predict growth
Finance & accounting49%47%48%33%
Real estate49%43%32%45%
Retail31%39%34%40%
Manufacturing44%39%30%38%
Media & marketing46%38%37%36%
Hospitality & leisure33%37%27%29%
IT & telecoms49%36%41%38%
Construction33%32%26%31%
Legal47%30%44%41%
Transport & distribution34%29%27%25%
Agriculture29%25%32%27%

Net percentage of businesses predicting growth – results over time

 % that predict net growth (significant or modest/organic) 
Q3 201836%
Q4 201836%
Q1 201936%
Q2 201934%
Q3 201935%
Q4 201936%
Q1 202039%

Percentage of businesses predicting growth by region

 Q1 2020%that predict growthQ1 2019%that predict growth
London 47%36%
North West45%44%
North East44%51%
East43%28%
Yorkshire /Humber39%35%
South West38%29%
East Midlands38%42%
West Midlands34%35%
South East34%40%
Wales30%30%
Scotland30%31%