Signs of UK business growth hit record highs, says R3
A record 68% of UK businesses are showing at least one key indicator of growth, according to the latest Business Distress Index from R3, the insolvency trade body.
R3 has tracked five key indicators of UK business growth since March 2012 – including investment in equipment, increased sales volume, business expansion, increased profits, and growing market share. Each indicator measures the share of UK businesses experiencing that particular sign of growth.
In R3’s latest survey, all indicators have hit record highs, while four out of five indicators have grown by double-digits since R3’s summer survey – an unprecedented level of growth (see chart).
Liz Bingham, R3’s president, says: “Following on from R3’s last survey, the latest results are a welcome sign that the recovery is bedding in and gaining ground. This is very encouraging. We’ve never seen such a rapid improvement from one survey to the next.”
“After such a prolonged period of stuttering growth, it’s very nice to be able to talk about good news for a change.”
Liz Bingham adds: “While large businesses are still much more positive than SMEs, it’s very welcome to see that SMEs have shown big improvements in their financial situation since the summer.”
66% of businesses with a turnover between £50k and £1m report at least one growth indicator, up from 51% in the summer.
R3’s latest survey also measured whether businesses were planning to expand next year.
44% of UK businesses are planning to expand next year, compared to 39% that are expecting to consolidate. This is a reversal of this situation last year, when 42% businesses said they had consolidated, compared to the 41% that said they had expanded.
Liz Bingham says: “The willingness of businesses to begin investing in their long-term future again suggests a level of business confidence that has previously been missing. If this change in attitude can unlock business investment, then that bodes well for the future.”
“A common complaint since the recession has been that businesses lack the confidence – whether in bank lending, government policy, or economic performance – to make long-term investment decisions; this lack of investment itself has helped hold back economic recovery.”
UK businesses showing signs of growth
Distress levels remain low
The latest survey also found that signs of business distress remain low: 37% of businesses are showing at least one sign of distress, compared to 64% in March 2012.
Liz Bingham adds: “Although over a third of businesses are showing signs of distress, there is no reason for concern. As long as business distress is carefully and proactively managed, business and economic growth should not be undermined.”
“Rising levels of distress would not be unexpected either. In the early stages of a sustained recovery, businesses will often begin to find things becoming tougher rather than easier: creditors become more confident in pursuing debts; the results of under-investment during a recession are exposed; while increased demand can put pressure on cash flow, supply chains, or business models.”
Liz Bingham continues: “The only potential cloud on the horizon is the prospect of interest rates rising sooner rather than later. Falling unemployment is welcome, but it means the Bank of England’s 7% Forward Guidance ‘knockout’ figure is getting closer and closer. A higher cost of borrowing would be a real test for some businesses.”
· Research undertaken by BDRC Continental, an award-winning insight agency. Questions were put to 500 UK businesses via BDRC Continental’s monthly Business Opinion Omnibus. Telephone-based interviews with a nationally representative sample of senior financial decision makers across the UK, weighted by size, region and sector. Fieldwork dates 7th to 17th October 2014