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Confidence Falls Back Slightly, But Growth and Hiring Aspirations Strong Among Region’s Small Businesses

Confidence Falls Back Slightly, But Growth and Hiring Aspirations Strong Among Region’s Small Businesses

Half of small business owners (50%) predict that their business performance will improve in the next three months. In the East Midlands, small business confidence for the next 3 months is positive in Q2 2021 (50%) which is the same figure at the end of Q1 2021.

  • Federation of Small Businesses (FSB) East Midlands quarterly Small Business Index (SBI) remains positive and matches Q1 levels of 50 per cent
  • Debt, rising costs, skills shortages and international trade disruption all causes for concern among small firms
  • Next few months look positive for East Midlands small firms, but gross profit expectations are still lower than the UK average

While all regions in the UK are improving, especially compared to the same time last year, sentiment in the East Midlands appears to be way ahead of other UK counterparts – with a UK average of 19%, the next closest regions to the East Midlands are South West (29%), North East (28%) and the South East (27%).

However, despite high levels of confidence, the region suffered when it came to overall staffing levels.

During the quarter, almost a sixth of small firms (14%) had reduced their staffing numbers, and nine per cent increased theirs. At the end of Q1, only two per cent had anticipated cutting staff levels.

When compared with other regions across the UK, the East Midlands (net -4%) is one of the only regions where the net balance is negative; the other being London (-1%). The UK average is 2%.

Ultimately, most small businesses in the region have been unaffected, with over two thirds (70%) reporting that their staff levels have ‘stayed the same’.

Around 20 per cent of small firms in the region expect to increase their staff numbers over the next quarter, but a small portion predict a decrease (4%). 

Nearly two thirds of small businesses surveyed across the UK (64%) said that operating costs had increased in the past quarter compared to last year, up 20 percentage points from Q1 2021. Four in ten (42%) cite inputs, such as raw materials and components, as a main contributor to this increase, up 12 percentage points on last quarter. Labour costs (36%), utilities (28%), and fuel (26%) are also frequently flagged as sources of rising outgoings as inflationary pressure takes hold.

The share of firms citing lack of access to appropriately skilled staff as a barrier to growth has soared to its highest level on record (37%), with the proportion of respondents citing it as a barrier up 18 percentage points compared to Q2 2019, before the pandemic hit. Input costs are cited as a barrier to growth by a quarter (25%) of respondents, up from 16% in Q1 2021 and just 11% in Q2 2020.

Amid mounting evidence that lockdowns have exacerbated the UK’s late payment crisis, half (54%) of respondents who successfully applied for credit in Q2 2021 did so in order to manage cash flow, up 9 percentage points compared to Q2 2019. With emergency loan schemes now closed, a third (32%) of those who applied for credit last quarter were rejected, the highest proportion since Q4 2015. Four in ten (37%) small businesses with debt now view their level of borrowing as unmanageable.

Elsewhere, new trading rules continue to be a source of pain for firms that do business internationally. Close to a quarter (23%) of exporters have stopped selling into the EU either temporarily or permanently. The overwhelming majority (92%) of importers and exporters have experienced shipping delays since April.

Clare Elsby. FSB’s Policy Chair, said:

“As the region gets back to business, small firms are, in the main, well-positioned to take full advantage of the opportunities on offer to them as the economy recovers.

“Confidence is really strong across the East Midlands, which is great news for small firms who hope to continue this into the second half of the year. However, the higher than expected levels of small firms cutting their staff levels will be a concern and will need to be addressed in Q3.

“Skills shortages and rising input costs should concern us all – anything which puts the brakes on small business recovery is bad news for the economy. Recent announcements around upskilling are welcome but will not be in place rapidly enough to provide immediate relief.

“With most restrictions now eased, we’re urging all shoppers to respect the house rules at each business they visit, as owners strive to keep customers and staff safe.”

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