Second Index release tracks small business debt factoring volumes and economic opinion across end of 2009
A third of UK businesses are not expecting trading conditions to recover from current levels for at least a year, suggesting firms are taking only tentative steps towards recovery despite expected GDP growth in Q4 of 2009, according to the latest Bibby Business Factors Index.
The Business Factors Index, compiled by specialist business finance provider Bibby Financial Services, tracks movements in small business turnover since July 2007. The trends derived from this data have been collated alongside the results of a series of interviews conducted with more than 300 business owners from a range of businesses across the UK.
The study reveals:
- Q4 2009 saw the Index average rise 2.5 points higher than the previous quarter signalling a slight return to growth at the end of 2009
- In general, despite an improved outlook in Q4, business owners remain as reluctant about a recovery over the next six months as they were in Q3 of 2009. Almost half (48 per cent) feel their business is experiencing the same conditions as six months ago – a slight increase from 46 per cent for the previous quarter’s Index
- Indeed, businesses are more negative about the long-term than previously, with the number of businesses stating they do not expect trading conditions to improve for at least a year rising to 33 per cent from 19 per cent from the last Index
- One in 10 (13 per cent) do not expect trading conditions to improve for at least two years – this has increased slightly from 11 per cent reported in the last Index – indicating most businesses feel they are not out of the woods yet
- One in 10 (10 per cent) predict the market will remain in recession for three years or more – this figure is the same as the previous quarter’s Index, suggesting there are a number of business owners for whom the outlook remains bleak
More encouragingly, however:
- The number of businesses expecting a recovery by Summer this year has increased from one in 10 to one in five (18 per cent) and 11 per cent of businesses surveyed believe that trading conditions will improve come Springtime
- In 2009, the Index was at its highest in September, in line with market activity in the lead-up to Christmas, mirroring CBI predictions that UK GDP was set to grow by 0.5% in Q4 with consumers bringing spending forward in advance of the VAT increase
- Businesses in Scotland (10 per cent), the South West (8 per cent) and the North West (5 per cent) are most optimistic about seeing green shoots from the last quarter of 2009 – no other regions felt that they would experience this kind of recovery
- It is the manufacturing and transport & storage sectors which have become more positive. The percentage of manufacturers stating that their sector will improve faster than others is now 15 compared to nine per cent reported in the previous Index.
- Within the transport & storage industry, the number of businesses anticipating a recovery in line with other sectors remains at three quarters / 75 per cent??? which is in line with the previous Index, showing consensus in expected recovery for this sector.
Findings from the Index are supported the CBI’s New Year forecast which highlights both opportunities and risks over the coming months. Indeed, bank lending figures to small businesses are up four per cent year on year, suggesting that business owners now have more of a chance to start taking small steps on the road to recovery. The Index also highlights the feeling among businesses that Government legislation may also hinder this process causing more expense for business, and limiting access to cash – an opinion expressed by the CBI in their New Year forecase and indeed shared by Bibby Financial Services.
Edward Rimmer, UK and Ireland chief executive at Bibby Financial Services commented: “Following the economic turmoil of the last two years, it is no surprise that UK businesses remain cautious about recovery and it is encouraging to hear that despite this, firms from different sectors and regions are trying to remain upbeat. It is most importantly in the current climate to ensure they are prepared for growth and can make investments in their business where needed.
“While the latest Business Factors Index highlights signs of positivity and pro-activity among UK businesses in the face of recession, it is this further access to finance which is so desperately needed in order for businesses to move forward. However, despite this it is unlikely increased access to finance simply cannot be achieved in the current climate of ‘red tape’ and legislative change.”
“Particularly in the lead up to the Budget and impending general election, it is important to note that the Index shows 30 per cent of businesses believe a change in Government would aid economic recovery. The current economic climate is clearly still having an impact on business confidence and as such, we don’t see an improvement in mood until after the general election.”
The Bibby Business Factors Index also showed:
The Index also looked at confidence across the UK’s different business sectors and showed:
· The construction sector remains one of the worst hit by the current recession with a third of construction managers stating that conditions are tough and they are only just surviving.
· The wholesale sector has been boosted by the Christmas period but the mood of the industry is worse than ever – nearly half the industry believes that conditions are worse than six months ago.
· A cautious attitude underpins an upturn in the manufacturing sector. While 65 per cent have experienced an increase in new customers in recent months, a third (31 per cent) believe the industry will lag behind others.
· Apprehension about the rise in VAT and increasing fuel prices has dampened improvement seen in trading conditions for the transport and storage sector – almost a third (32 per cent) are finding conditions tough, despite 43 per cent feeling that their business in the sector is performing better than the previous six months.
· Recovery of the business services sector remains the slowest behind other industries, but the sector is positive about the future with one in five anticipating a recovery by this spring, even after an unexpected fall in sales in 2009.
Edward Rimmer concluded: “While there is much talk about the end of the downturn, it is evident that worse hit sectors, such as construction and business services, remain stuck in recession and will struggle to see a positive upturn in trading conditions in Q1 or indeed Q2 of 2010. However, the Index does highlight a general feeling towards a tentative recovery, irrespective of whether or not trading conditions have improved. Even more revealing is the change of attitudes in relation to a recovery – more businesses believe that a change in Government will aid recovery more than support from the banks – this indicates the alternative finance sector will continue to grow in 2010 as less reliance is placed by UK businesses on the banks.
“The finance industry is seeing a shift towards alternative finance providers with latest figures from the Asset Based Finance Association (ABFA) showing that the amount of funding advanced to businesses in the UK in Q3 of 2009 has risen to £48,667 million, an increase of four per cent on Q2 figures – this is supported by our own figures.
“Bibby Financial Services will ensure our insights into recovery are utilised in supporting business recovery in 2010.”
Kate Sharp, CEO Asset Based Finance Association said of the report: "The latest Business Factors Index shows that UK businesses are still working through the tough economic conditions suggesting that 2010 will be a key year in terms of access to finance. Securing funding both to invest and grow could go some way to restoring confidence within industry sectors and in the economy as whole. As banks continue to keep their lending criteria as narrow as possible, businesses must prepare to ride out the final difficult months of the recession by making sure they seek the best financial advice, prepare as best they can to allow cash to flow throughout the business, and explore all finance options available to them. This is a pioneering review of our industry and provides an insightful overview of current climate."
Posted on 22 January 2010