Rising inflation and cybersecurity are the most common fears among British SMEs for 2018, according to new research from Barclays Business Banking.1

SMEs believe these issues are most likely to negatively impact their growth in 2018, while consumer demand is most widely expected to have a positive impact.

Inflation, cyberattacks, and state of the UK economy more widely feared than Brexit

According to Barclays’ annual SME Hopes and Fears Index1, which asks decision makers at UK SMEs which factors they expect to help or hinder their business growth in 2018, inflation is most cited as a fear (by 43%). It can increase costs for a business, and also impact the wider economy, with 36% fearing the effects of prices rising faster than wages, which could put pressure on consumers.

Inflation is followed by the risk of cyberattacks (41%) and the state of the UK economy (40%). These factors are followed by fraudsters targeting small businesses (39%), and Brexit and UK politics (35% each), which rank sixth.

Top 5 SME fears for 2018:

Factors SMEs expect to hinder business growth in 2018 Ranking
Inflation 1 (43%)
Cyberattacks 2 (41%)
State of the UK economy 3 (40%)
Fraudsters targeting my business 4 (39%)
Price inflation outpacing wage rises 5 (36%)

 

In May 2017, Barclays launched a major engagement campaign, Barclays DigiSafe, to raise awareness of cyberattacks, fraud and scams. It includes a £10m national advertising campaign, and provides customers with additional tools to protect themselves. Dedicated support for the bank’s one million SME clients has included free support clinics.

SMEs have high hopes for consumer demand and are more positive about technology

When it comes to the factors business owners expect to positively impact their business growth, consumer demand is most widely tipped to have a positive impact, with 50% expecting it to do so. This is a change from last year’s results2 when just 22% expected it to have a positive impact.

SMEs have become more positive about technology, with 48% expecting that availability of better technology will have a positive impact on their business (37% last year), and 42% expecting e-commerce/digital presence to do so (23% last year).

Top 5 SME hopes for 2018:

Factors SMEs believe will have a positive impact on business growth in 2018 Ranking
Consumer demand 1 (50%)
Availability of better technology 2 (48%)
E-commerce/ digital presence 3 (42%)
Investment in the local area 4 (34%)
International marketing opportunities 5 (28%)

Reflecting the uncertain times, there is a near even split among SMEs about the outlook for 2018, with 46% believing it will be a year of opportunities, and 49% predicting a year of challenges.

Most SMEs plan to maintain the same level of investment (65%) and employee numbers (68%) as for 2017. However, those making changes are generally positive, with 21% planning to increase the number of employees, compared with 5% planning a decrease, and 20% planning an increase in investment, compared with 8% planning a decrease.

Barclays  Stuart Brown -  Head of SME Banking for Barclays Scotland & Northern Ireland.  Neil Hanna Photography www.neilhannaphotography.co.uk 07702 246823

Stuart Brown, Head of SME Scotland at Barclays Business Banking, commented: “The research reflects small businesses being empowered by new technology and e-commerce. Compared with a year ago, more think these developments will have a positive impact on their business. From our work with small companies, we see them making more use of data and online services, including our own, that help them manage their marketing and finances more easily and effectively. By making the most of these opportunities, SMEs can increase sales, cut costs and save time, strengthening their business.

“Inflation is clearly a worry, and in particular the potential for prices to rise faster than wages. Business owners are clearly taking a prudent and cautious approach to the year ahead. However, there are positive signs of SMEs investing more and hiring more staff.”

¹ 2017 research (looking at 2018 hopes and fears) was conducted by Opinium on behalf of Barclays, 500 online interviews with UK senior decision makers/business owners in SMEs defined as having 250 or less employees, between 9th– 16th November 2017.

2 2016 research (looking at 2017 hopes and fears) was conducted by OnePoll on behalf of Barclays, 500 online interviews with UK senior decision makers/business owners in SMEs defined as having 250 or less employees, between 12th– 19th December 2016

The latest UK inflation figures for October show that consumer price inflation has held at its highest level since April 2012, with the CPI rate holding at 3.0%.

As with the figures released in September, the rate of inflation continues to be driven by increases in the price of food. Prices for food and non-alcoholic beverages increased by 0.4%. The increase in recreation and culture costs also continued from September, with a 0.5% rise building on the growth in prices observed last month. As highlighted by the ONS, the UK has consistently observed higher price inflation across both goods and services for the last six months.

Meanwhile, producer price inflation rose by 2.8%, mainly due to a slowdown in the rate of petroleum price growth. As with Consumer Prices, this is slightly lower than the markets were anticipating.

Liz Cameron, Chief Executive, Scottish Chambers of Commerce said:

“Although the hold in the CPI rate is a more positive outcome than the rise that many analysts were expecting today, the continued increase in the prices of food and recreational products emphasise the persistent pressure on the budgets of UK households. Furthermore, the CPIH figures highlight growing owner occupier costs, such as electricity and council tax.

“Rising mortgage payments, bolstered by the decision to raise interest rates, alongside the sustained weakness of sterling will also act to slow consumer demand and impact the bottom lines of businesses.

“These figures come at a crucial time for the Chancellor, and it is essential the Autumn Budget presents a range of measures to jumpstart the UK economy, including encouraging businesses to invest in their employees and boost productivity, look to new markets for trading opportunities and investment in essential infrastructure.”

Commenting on the latest UK inflation figures showing CPI increasing from 2.6% to 2.9%, Liz Cameron, Chief Executive, Scottish Chambers of Commerce, said:

“These latest figures which show that inflation has increased can be largely attributed to the rising price of clothing and footwear, with the import-intensive nature of the industry and the exchange rate pressure which arises through the supply chain, driving the increase.

“Additionally, prices at the factory gate are increasing and with CPI inflation continuing to outpace pay increases, this will raise some concerns for businesses when it comes to the availability of consumer spending. We are hearing early signs from members, although not widespread, of increasing costs being passed down the supply chain and potentially to the end consumer.

“With this in mind, and with only modest GDP growth, the Bank of England should hold steady on raising interest rates.”

Scottish Chambers of Commerce believe that June’s fall in CPI inflation from 2.9% to 2.6% will ease pressure for an early increase in interest rates.

Liz Cameron, Chief Executive of Scottish Chambers of Commerce, said:

“June’s fall in inflation is significant, although much of the downward pressure came from a fall in fuel prices this year compared to an increase at the same time last year. Staples such as food and household goods continue to increase and expectation remain that inflation will continue to rise above the target rate of 2% for some time to come.

“Nonetheless, it should ease some of the growing pressure from the Bank of England’s Monetary Policy Committee for an early rise in interest rates. The Bank took decisive action to lower rates to rock bottom following last year’s EU referendum result, and businesses welcome the stimulus that this has brought to the economy. Interest rates will eventually have to go back up again, but the risks to our economy of doing so at a time of fragile growth are substantial.

“Next month’s Bank of England Inflation Report will be eagerly awaited in terms of how these latest figures will factor in to future prospects, with inflation expected to peak at or around 3% before falling back. A steady hand on interest rates coupled with determined government action to mitigate business costs will be key to medium term economic prospects.”

Today’s news that inflation has jumped to 2.7% has confirmed long-held expectations and highlighted growing concerns over the capacity for businesses to contain rising costs and the potential threat to consumer demand, as disposable incomes become squeezed. Liz Cameron, Chief Executive of Scottish Chambers of Commerce, said:

“Whilst part of the reason for this latest increase in inflation might be due to the timing of Easter and the consequent impact on the cost of flying, the fact remains that there are continued upward pressures on prices from a range of sources and the Bank of England last week said that it expected inflation to continue upwards to almost 3% later in the year.

“The impact on Scottish business and the Scottish economy is two-fold. Rising prices impact on businesses’ costs and their ability to invest and create jobs, whilst weakening real incomes could depress consumer spending, which has been the strongest driver of economic growth in Scotland over the past few years.

“These challenges, coupled with ongoing political uncertainty represent a risk for the Scottish economy, which our politicians must respond to. With a General Election campaign in full swing, politicians of all parties must remember that it is Scotland’s businesses that are the creators of jobs, wealth and growth in our economy, and businesses will be examining the various Parties’ plans to address this situation with keen interest.”

The Bank of England is expecting three further years of above-target inflation in the UK, whilst GDP growth projections this year are down marginally this year to 1.9% but up slightly to 1.7% and 1.8% in each of the next two years.

Commenting, Liz Cameron, Chief Executive of Scottish Chambers of Commerce, said:

“There are twin challenges facing our economy at the moment in the shape of rising prices resulting from the fall in the value of sterling and weak consumer demand due to low real income growth, putting upward pressure on inflation and downward pressure on economic growth respectively. In addition, many businesses are experiencing a rise in their costs, putting upward pressure on prices and threatening their capacity to boost investment.

“We will be looking for next month’s General Election, whatever its outcome, to deliver greater clarity and stability. The next UK Government must act quickly to set out its agenda for Brexit, enhancing market confidence, and taking early action to tackle core business costs. Targeted tax reductions could play a key role here and help provide the boost that would stimulate improved levels of investment and new employment opportunities.”

Commenting on the Bank of England inflation report and interest rate decision published on ‘Super Thursday’, Suren Thiru, Head of Economics at the British Chambers of Commerce (BCC), said:

“The Bank of England’s latest projections point to little change in outlook for the UK economy, compared to their February report, with only a slight downgrade for 2017. Significantly, the central bank see inflation as a greater risk to the UK’s growth prospects in the coming months.

“In our view the Bank of England’s forecasts are still too optimistic about the UK’s near-term growth prospects. We expect that inflation will weaken economic activity by more than the central bank is currently predicting, with wage growth likely to remain persistently below price growth over the next few years. Rising input costs faced by businesses are also likely to weigh more heavily on investment intentions than the Bank of England forecasts currently imply.

“The Bank of England is likely to face a major headache over the next few years as it seeks to strike a balance between managing a period of above target inflation and supporting more subdued economic growth. Longer-term uncertainty over the impact of Brexit on the UK economy is also likely to weigh on UK monetary policy decision-making. Against this backdrop, the most likely scenario is that the MPC will opt for a prolonged period of monetary stability and keep interest rates steady over the near term.

“Is vital that the next government addresses some of the longstanding issues facing the UK economy, including the relentless increases in the up-front cost of doing business in Britain, and investing in critical infrastructure to enable businesses to continue to drive investment, create jobs and boost growth.”