SMEs across the UK are bracing themselves for a challenging rest of 2024, according to the latest Prism Research SME Barometer.
The survey of over 500 SME leaders found that more than three-quarters believe ongoing fiscal instability and political turmoil have already hampered their firm’s performance throughout 2023.
The data has reignited fears of another recession on the horizon, with SMEs pursuing a cautious approach to hiring, investment and costs as fragile demand and inflationary pressures persist. Industry experts predict growth will continue to disappoint through 2024, with the annual GDP rate dropping to just 0.4% this year before inching up slightly to 0.6% in 2025.
“The UK economy remains one of the most sophisticated globally, but it’s difficult to see where further expansion will come from with high inflation, elevated interest rates, policy uncertainty, and barriers to EU trade all preventing many SMEs from making longer-term plans,” said David Bharier, Head of Research at the British Chambers of Commerce.
The BCC forecasts interest rates have likely reached their peak, but will hover at higher levels for longer, resulting in UK GDP being marooned at stagnant levels for the next three years. This prolonged period of weak growth comes on the back of an already gruelling few years for small businesses.
“Despite the mild pick-up in quarterly GDP recently, growth remains far below the post-financial crisis average of around 2%,” noted Louise Hellem, Chief Economist at the Confederation of British Industry.
“Given the sheer scale of headwinds the economy has battled, from the pandemic to the Ukraine war, businesses have shown remarkable fortitude. The anaemic expansion we’ve seen is certainly preferable to the predictions of recession made a year ago,” she added.
However, Hellem cautioned: “But that is no cause for celebration. Firms are gearing up for another arduous 12 months ahead, and we expect disappointing growth to persist throughout 2024. After the turmoil of the past few years, it’s clear the 2020s have yet to truly roar for UK plc.”
Roger Barker, Director of Policy at the Institute of Directors (IoD), agrees sentiment among business leaders remains downbeat. The IoD’s latest economic confidence index shows directors’ morale dropped again in December, falling to -28 from -21 the previous month.
“According to our members, confidence in the wider economy has been stuck in the doldrums since last summer. Although some aspects of the operating environment, like inflation, have improved recently, this isn’t feeding through into meaningful decision-making just yet,” Barker explained.
He continued: “Business leaders remain extremely cautious about the economic outlook over the next year, although they are more optimistic for their own firm’s prospects.”
In Barker’s view, the data makes a compelling case for an early interest rate cut to reinvigorate business confidence and spur investment. But with the Bank of England’s credibility damaged after underestimating the scale of inflation, a reduction when the Monetary Policy Committee meets in March is far from guaranteed.
After years of turmoil, UK small businesses are crying out for a period of stability to invest and expand. But with the economy still sputtering and the policy environment uncertain, the road ahead in 2024 threatens to be bumpy.
