The outlook for SMEs and staff in 2014

POSTED: 9th October 2014
IN: Guides

The British economy has now been on an even keel for more than a year, growing by 0.8 per cent in every quarter since Q2 2013, with the exception of the final quarter of last year, when it expanded by 0.7 per cent.

The British economy has now been on an even keel for more than a year, growing by 0.8 per cent in every quarter since Q2 2013, with the exception of the final quarter of last year, when it expanded by 0.7 per cent.undefined

Research suggests that this consistency in the wider economic environment is contributing to stronger confidence among small and medium-sized enterprises (SMEs).

There are many reasons for smaller firms - and their employees - to feel optimistic, as shown in recent research from Aldermore Bank.

The Aldermore SME Monitor

The latest Aldermore SME Monitor, compiled by the Centre for Economics and Business Research (CEBR), showed that wages increased by 1.9 per cent year on year in the first quarter of 2014, which made a substantial contribution to the 1.1 per cent rise in annual cost inflation for SMEs.

There was significant variation across sectors, with pay growth found to be much stronger in industries such as construction - largely because of skills shortages - than manufacturing. In the business services sector, wages declined by 0.4 per cent compared to Q1 last year.

While labour expenses have generally been rising, smaller businesses have benefited from falling materials prices and a 3.3 per cent reduction in the cost of financial services.

The SME Monitor also revealed that firms are anticipating economic growth of three per cent in 2014, which would make the UK the fastest-growing economy in the G7.

This is linked to the finding that small business confidence more than doubled between the first quarter of 2013 and the same period this year, rising to an index level of +39.8.

There have also been steady improvements in sentiment among larger companies, but not at the same rate as in the SME community.

Mark Stephens, Aldermore deputy chief executive and group commercial director, said: "Despite a marginal rise in cost inflation, Aldermore's SME Monitor paints a positive picture for SMEs in Q1 2014. Confidence is up across the board and SMEs are showing particular optimism.

"Wages are up, which is fantastic news for employees, and the cost of commodities is down. 2014 looks set to be a strong growth year for the UK economy and UK businesses."

However, Mr Stephens also stressed that "we are not out of the woods yet", with data showing that business insolvencies remain above the levels seen before the financial crisis struck in 2008. Just over 4,000 firms were liquidated during the first quarter of this year.

There is also the possibility of an increase in interest rates in the near future, which could make business borrowing more expensive in 2015.

CEBR economist Danae Kyriakopoulou also commented on the research findings, noting that cost pressures for UK SMEs remained "benign" in the first quarter.

Despite this, she underlined the importance of companies being prepared for potential future challenges, such as higher energy prices as a result of ongoing "geopolitical tensions" in the Middle East and Ukraine.

Manchester business case studies

Talk of business communities, national trends and macroeconomic factors such as interest rates can sometimes feel vague and difficult to connect to the everyday experiences of SMEs.

Aldermore Bank has highlighted the personal, identifiable side of British business in 2014 by talking to a number of small companies in Manchester, the setting of this year's Labour party conference.

Hiring Hub is an online recruitment portal used by employers including the NHS, which was recently listed among five firms to watch in the Startups Young Guns awards.

Discussing the appeal of self-employment and running your own enterprise, co-founder Simon Swan said: "I just don't think I could do anything else; I think I'll always be running my own business or self-employed. It just gives you that control over your own destiny."

Grant Erskine Architects is an example of the fact that it is possible for companies to flourish in the most difficult of conditions, having launched in 2010, when the UK was still feeling the worst effects of the recession.

Mr Erskine started the venture after studying architecture for seven years at Manchester University. The firm has succeeded thanks to its flexible philosophy of delivering tailored services that reflect the unique requirements of particular projects.

Another example of the importance of bespoke business offerings to suit the needs of individual customers is MHA Lighting. The award-winning company manufactures innovative LED lighting systems and has worked on major contracts for clients including Manchester airport and the National Exhibition Centre in Birmingham.

These enterprises show that with the right mix of ingenuity, a good product offering and a strong work ethic, business success is achievable in even the most unforgiving environments.

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