The Capify Confidence Survey, also found that firms were holding back on investment. When asked about areas in which they intend to invest over the coming year, UK SMEs identified an average of just 1.41 initiatives, compared to 1.63 in Q1 of this year. Perhaps reflecting the ongoing labour market challenges, 40% of firms intend to invest in the recruitment and retention of staff, whilst planned investments in green and sustainability initiatives saw the biggest quarterly drop, from 21% to 10%.
The survey uses business owners’ responses on business performance, confidence, and investment intentions to produce an overall confidence score between -10 (very unconfident) and +15 (very confident).
John Rozenbroek, CFO/CCO at Capify, said: “Understandably, as inflation soars and the economy contracts, SME outlook is left in a very fragile state. Confidence is at the lowest point since we launched the survey. Our Q2 confidence score now sits at -2.70, a significant downgrade on the 7.68 we saw in Q1 of this year.
“But it’s not just confidence which is impacting growth potential. We’re beginning to see the very real operational implications of this inflationary period”.
“This is having a knock-on effect on business’ ability to make strategic investments for the medium- and long-term.”
Despite these significant challenges, UK SMEs continue to show the resolute resilience that has become a hallmark of smaller businesses over the past three years. Most surveyed firms remain bullish in the face of prevailing conditions, with 61% of businesses expecting revenue growth over the next 12 months and 40% anticipating headcount additions.
The survey also revealed that access to finance continues to be a real concern for UK SMEs however. Only 40% of respondents felt confident they would be able to secure finance from their bank, down 8pp from Q1 2022.
Mr Rozenbroek added: “We know that access to finance is vital for smaller businesses struggling with these unprecedented challenges. UK smaller businesses are the lifeblood of our economy and when they stop investing and creating jobs it has wide implications.”
“At Capify, we will continue to be there to support SMEs with finance provision for both short-term working capital and cash flow requirements, as well as longer-term investments.”