Survey reveals SMEs no longer in good health

THE health of SMEs in Wales has worsened, according to new research. The SME Health Check Index from banking group CYBG, a quarterly measure of performance and outlook for SMEs, has fallen by 2.5 points in Wales to 52.5. A score of 100 would denote maximum improvement and zero and major decline.

The main driver of the decline was the employment indicator in Q2, but this was offset by improvements in the confidence and lending indicators. While the value of Welsh SMEs’ outstanding loan and overdraft balances in Q1 2019 was marginally below the value at the same time the previous year, the annual rate of contraction was the lowest since 2015.

SME sentiment is now more positive in Wales than in any other part of the UK. Nevertheless, despite the relative optimism of Welsh businesses, productivity remains a major challenge for the local economy.

The index, published by CYBG in partnership with leading economic consultancy, The Centre for Economics and Business Research (Cebr), draws on data and qualitative information from a wide range of sources.

For the UK as a whole, the index fell by 6.9 points to 41.9 in Q2 2019, as economic and political uncertainty continued to weigh on business confidence. Again, however, the study overall reveals a mixed picture, with continued resilience in the UK labour market, and encouraging insights on business diversity.

The reduction in the headline figure across the UK was driven by falls across the majority of indicators comprising the Index, including the first quarterly contraction in GDP in Q2 since the final quarter of 2012, as well as declines in capacity, lending and net business creation measures.

The index also examines how the complexity and diversity of UK SMEs

enhances their ability to deal with the ongoing political and economic uncertainty. Looking at companies from a range of perspectives – including diversity in products, customers, suppliers, geography and workforce composition – the research sought to ascertain how far companies have protected themselves from sudden disruption or shocks.

Wales’ population of businesses is the least diverse in the UK in terms of the industries in which they operate. Three in ten Welsh SMEs work in one of three sectors: crop and animal production (13%), specialised construction activities (9%), and retail (9%). However, the data points to a significant split between Wales’ major cities and the nation as a whole.

For example, Cardiff’s business population is the third most diverse out of the 25 UK cities analysed, driven by a lower prominence of firms in the retail and construction sectors and a higher representation in professional activities including financial services and legal services.

Nearly one in five (17%) of Welsh SMEs surveyed stated that their business operates in multiple regions. This gives Wales the highest score in the UK along the geographical diversity measure. The survey results show that Welsh SMEs have the closest ties to the neighbouring West Midlands region.

Gavin Opperman, group customer banking director, at CYBG, said:“The health of Wales’s SMEs is pivotal to the success of our wider economy, and the picture painted by the results this quarter was mixed. We saw a fall in the region’s headline index, but some improvements across confidence and lending indicators.

“On the surface things may look a little gloomy across the UK, but cause for optimism can be found.”