Clydesdale owner: SME health at 18-month high

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.

The Index is a new quarterly economic index compiled by Centre for Economics and Business Research Limited (Cebr) in association with CYBG plc, owner of Clydesdale and Yorkshire Banks.

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.

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

CYBG said that 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.

Further, business costs faced by SMEs seem to have almost plateaued in Q2 2017.

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.

CYBG CEO 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.”

CYBG committed earlier this year 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.

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 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 Sands, Head of Business Banking, at CYBG, 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.”