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High interest rates and political uncertainty are holding back many businesses from investing in long-term business growth according to research from SME funder Bibby Financial Services (BFS).
Over half (53%) of SMEs are putting off making major investments until interest rates fall, while four in 10 (43%) are delaying investment until after the next general election.
Furthermore, delayed capital expenditure may be a result of an uncertain credit environment for small businesses, with over half (53%) saying that it’s more difficult to access finance today compared to six months ago, and 61% of SMEs stating that existing lenders have reduced their credit availability in recent months.
Despite this,businesses are more optimistic this spring, reflecting wider economic indicators pointing to an improved outlook for the UK.
The majority of SMEs (61%) predict an increase in sales over the next six months, compared to just 54% in Q1 2023, a +7 percentage-point uplift year-on-year.
Some seven in 10 (71%) UK SMEs also cite economic growth and job creation as one of the top three critical issues facing their business ahead of the next general election.
Nearly two thirds (65%) believe that the most important outcome is that the winning party supports long-term business growth.
Derek Ryan, BFS UK managing director of Bibby Financial Services, said: “It’s evident that despite the challenges faced last year, confidence is returning among the UK’s 5.6 million SMEs. However, interest rates remaining at record levels since the Financial Crisis, and a forthcoming general election, are causing an investment freeze among these businesses.
“This will ultimately kick economic growth down the road. So, while the latest GDP figures offer some hope for the economy, more needs to be done to stimulate much needed investment in the short-term.”
He added: “While the Government remains behind its 2 percent inflation target, business leaders are sensing the light at the end of the tunnel. But with SMEs making up 99.2 percent of the UK’s total business population, their current uncertainty and dampened investment risks impacting the country’s broader economic recovery.
“For the Government, the question now is how it can give SMEs some much needed support and confidence in the long-term outlook for the economy, so they can act bravely and invest in growth.”
