CYBG’s latest SME Health Check Index witnessed a 4.9 point increase to give a national score of 54.9, the highest level in six quarters. This was mirrored in the West Midlands, which received its own score of 44.6, increased from 42.9 in the previous quarter. This was due to a slight improvement in new business creation and lending indicators.
The report, which is published in partnership with leading economic consultancy, the Centre for Economics and Business Research (Cebr), covers Q4 2018 and highlights that on a national level, SMEs are continuing to hire staff, taking employment rates to record levels.
It also examined the health of SMEs in UK cities for the first time over the same time period to add extra depth and insight to the regional picture. In total, 25 cities were examined, which included Birmingham and Coventry in the West Midlands. Birmingham sits in 19th place with economic and employment growth well above the UK average. However, there was a sharp fall in the number of SMEs operating in the city in 2018 after four years of rapid growth. Manufacturing is a large part of the economy so a disruptive Brexit is a major risk. It also lags behind London in terms of productivity.
In Coventry, its employment rate is the third highest out of the 25 cities reviewed, however the number of SMEs operating in the city has fallen by than two per cent between 2017 and 2018, resulting it in being ranked in 17th place. Education is an important sector for the area with more than 4,000 residents employed by the two universities as well as a high percentage of students coming from overseas.
Gavin Opperman, Group Business Banking Director, at CYBG, said: “This is the first time the SME Health Check Index has done a deep dive into SME activity in the UK cities. SMEs are the backbone of Britain’s economy and cities, like Birmingham and Coventry, often act as drivers of regional economies. This new level of detail gives us an excellent insight into what’s really happening at a local level and is invaluable in supporting our customers in the West Midlands.”
At a national level, the report reveals that businesses have increased their borrowing with lending reaching the highest level since this index began in 2014. However, in contrast, this was accompanied by plummeting confidence levels, as well as a 0.9% decrease in investment. Despite decelerating GDP growth and continued uncertainty about Brexit, SMEs seem wary but optimistic with a determination to “keep calm and carry on”.
From the seven indicators surveyed, five showed improvement with Q4 2018 witnessing a welcome slow-down in business cost inflation. It fell to 2.8%, which is 0.2% lower than the rate recorded in the third quarter. This was primarily driven by a slowdown in price growth for commercial rents and physical inputs as employment cost inflation continued to accelerate.
Gavin added: “The latest SME Health Check Index shows a nuanced picture but one which gives me cause for optimism, as the country’s SMEs seem poised for greater growth and success when the Brexit fog clears. They are showing resilience and resolve with strong employment growth, positive net business formation and increased borrowing, which is all good news for UK plc. However, decelerating GDP growth, partly driven by a slowdown in the global economy and increased household borrowing, feeds in to decreased confidence.”