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UK SMEs see costs increase as recovery brings salary increases

POSTED: 31st March 2014
IN: Newsroom
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Aldermore Bank’s quarterly SME Monitor compiled by the Centre for Economics and Business Research (CEBR), shows that annual cost inflation increased in Q4 2013, while business investment continued to increase against a backdrop of falling insolvency rates and improved business confidence amongst UK small and medium sized enterprises (SMEs).

  • Annual cost inflation reached 0.9% in Q4 2013, up from the recent low of 0.7% in Q3 2013 but remains 0.2 percentage points lower than the same point a year ago
  • Wage growth increased by 1.2% year on year in Q4
  • Total business investment increased by 2.4% quarter on quarter in Q4 2013
  • SME insolvencies continued to decline in 2013

Aldermore Bank's quarterly SME Monitor compiled by the Centre for Economics and Business Research (CEBR), shows that annual cost inflation increased in Q4 2013, while business investment continued to increase against a backdrop of falling insolvency rates and improved business confidence amongst UK small and medium sized enterprises (SMEs). 

Salaries at the average SME were up year on year in Q4 by 1.2%. Labour costs were found to account for approximately 30% of total business expenses for the average SME. The wage growth pushed the rate of cost inflation to 0.9%, higher than the recent low of 0.7% seen in Q3 2013, but still lower than the 1.1% seen in Q4 2012.

In Q4 SMEs in the construction sector saw their costs increase by 1.0% year on year, the largest increase in any sector. While manufacturing businesses saw their costs increase by just 0.2% year on year due to a fall in input cost inflation on products such as basic metals.

The SME Monitor also highlighted further good news for the wider UK economy, as total business investment continued to increase quarter on quarter by 2.4%. Business investment has been steadily increasing over the last 12 months from 0.7% in Q2 to 2.0% in Q3.

Continuing the positive trend, the number of business failures also continued to decline with 3,800 SME insovencies in Q4 2013, down from 4,100 during the same period in 2012.

The Confidence Index for SMEs had more than doubled at the end of 2013, having climbed to +39.7 from +16.0 at the end of 2012. Business confidence among SMEs continued on its upward path in Q1 2014 according to the ICAEW/Grant Thornton Business Confidence Monitor.

Aldermore Group Commercial Director, Mark Stephens, said:"The rising levels of confidence and improved wages show that the economic recovery in the UK is really starting to pick up pace. Slowing demand from emerging economies is helping to reduce pressure on commodity prices and the cost of physical inputs is falling back, helping to control the rise in SME cost inflation. The sustained period of economic growth has eased cost pressures and with demand growing, the business environment has significantly strengthened in comparison to the past few years.

"Business investment is a key element required for a long term sustainable recovery and therefore it is encouraging to see that the level of investment SMEs are making in their businesses has increased considerably over the last twelve months."

CEBR senior economist, Rob Harbron, said:"With GDP projected to rise by 3.3% compared to 2013, it is welcome news that growth is seen to be coming from all 3 major industrial sectors. One particularly encouraging trend that may emerge over the medium term is that of reshoring: with 1,500 manufacturing jobs identified as having been returned to the UK since 2011, a rise would be a valuable support to a sustained recovery."

 **ENDS**

The full report is available here.

For further information and interviews with Aldermore and the CEBR journalists can contact:

Nicola York, Cicero Group, nicola.york@cicero-group.com

+44 (0) 207 297 5965

Notes to Editors             

  • Small businesses are defined as those with annual debit account turnover on the main business account of less than £1 million. Medium SMEs are those with annual debit account turnover on the main business account of between £1 million and £25 million.
  • For further information about Aldermore, our financial backers and our PR contacts, please review our Notes to Editors page.

 Methodological note:

  • The figures presented within this report are calculated from a range of data provided by the Office for National Statistics (ONS), including the Producer Price Indices (PPI). In November 2013, the ONS updated the methodology of this series, rebasing from 2005 to 2010 to reflect changes in patterns of input use by firms and new products which have come to market in recent years.
  • This update has changed historical PPI data, and has resulted in some small changes to past readings of the Aldermore SME Monitor. Any differences between figures reported in this and past reports is due to these changes in official data, and reflects the best information available to the authors at the time of publication.
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