Close Brothers Asset Finance’s Business Sentiment Index (BSI), which measures SME business confidence, has risen modestly for the second consecutive research period, reversing 2022’s downward trend.

Unlike earlier in 2023, however, there were marked differences among the various sectors, with Manufacturing & Engineering seeing its BSI scores falling back slightly after gains in the first half of the year.

The headwinds facing small and medium-sized firms have abated somewhat, with inflation falling back and energy prices stabilising, however, interest rates rises and cost of funds remain a concern for many business owners.

Appetite for investment

Overall, the appetite to invest remained stable, with three quarters of UK firms aiming to seek funding for investment in the next 12 months.

Manufacturing & Engineering remained strong at 81% (May 2023: 83%).

Missed opportunities

The number of companies that have missed business opportunities because of a lack of available funding continued to fall, from 51% at the end of 2022 to 45% in May 2023 and 41% in September 2023.

More normalised levels are emerging for this question, last seen in May 2022, when 37% of respondents answered ‘yes’ to ‘have you missed a business opportunity in the last 12 months, due to lack of available finance?’.

Economic outlook

Businesses continue to be more negative than positive about the macro-economic outlook, however, the gap between positive and negative sentiment has narrowed this year compared to 2022.

There was no change between May 2023 and September 2023 in the cumulative result.

This indicator has contributed most to the decline in the overall BSI and it’s worth remembering that in November 2021 75% of respondents were positive about the economy – by December 2022 this had fallen to just 36% and has risen only 6 percentage points through 2023.

Predicted business performance

Predictions about future business performance continued to remain stable, with the majority expecting their prospects to remain unchanged.

“It’s pleasing to see that positivity is continuing to return to the market, albeit not at the rate we would all like to see, but the reality is the UK’s SME community continues to face a wide variety of challenges," says Matt Roper, CEO of Close Brothers’ Commercial business.

"These include a stubbornly high rate of inflation, higher interest rates, and a sluggish economy impacting demand.

"It’s worth stating again that - in our experience - what business owners want, almost above all else, is consistency, which gives them the ability to plan and forecast effectively. Many of the recent challenges have been entirely unexpected, and after the difficulties of the past few years, it’s impacted their ability to grow.

What continues to impress me, though, is firms’ appetite to invest in their future and the number expecting to expand in the coming year, and we’re looking forward to working with those business owners in the coming months and years.”

Score calculation*

The BSI is based on the views of 911 business owners and senior members of the UK’s business community and calculated from data charting their:

  • Appetite for investment in their business in the coming 12 months
  • Access to finance and whether they’ve missed a business opportunity through lack of available finance
  • Views about the UK’s economic outlook
  • Thoughts on their likely performance in the coming 12 months