How SMEs (Small and Medium Sized Enterprises) are Doing in the UK

24th April 2023

While the pandemic has likely said goodbye to the world already, many small and medium-sized businesses are still having to deal with its lasting effects, such as high infection rates and absent employees due to illness. Adding to that, the war in Ukraine has fueled inflation around the world, and the UK faces some more problems of its own—namely, Brexit red tape and labour shortages.

But it’s still possible to continue business operations by outsourcing parts of the process. In the case of a staff shortage, experts recommend business process outsourcing (BPO)—white label collections from a third party like Intrum. With BPO, organisations can use the expertise of the third party without interrupting or delaying their operations, or spending too much time and effort on something that third party can solve easier, faster, and cheaper.

However, for SMEs with small cash outlays, whose business models weren’t designed to sustain this way for longer periods of time, surviving in the midst of worldwide inflation can be a grisly task. They are in grave need of support from the government. 

What’s Up with UK Inflation: the Effect on SMEs

According to Capital Economics analysts, inflation in the UK has grown and stayed higher than anywhere else, as it’s experienced “the worst of both worlds—a big energy shock, like the euro-zone, and labour shortages—even worse than the US.” The report also said that energy prices may come down soon enough, but the issues around the labour market can go on till the end of 2024.

In the UK’s business landscape, SMEs are proving to be the primary victims of the inflating economy. The cost of raw materials, energy, and labour, among other expenses, have been driven high, and lenders and investors have become cautious, denying them the finance to expand by investing and taking advantage of new opportunities.

Economic concerns like high energy prices are generating immense pressure on SMEs, and a lot of them worry about their energy costs. For them, developing strategies to cut energy costs is becoming a key part of their whole business strategy. So, the main issues for SMEs currently are the domestic economy, inflation, and rising utility costs.

According to reports, the inflation rate in the UK hit a record-breaking 11.1% in October last year, the highest in 41 years, then declined slowly, sitting at 10.1% as of March 31, 2023. Living costs are at an all-time high, driving up labour costs around the UK.

What does this all translate into in the world of SMEs? Well, let’s break it down and look at it from multiple angles. 

  • 91% of all medium-size companies say that they are facing challenges due to inflation.
  • 45% of small business owners (up from the previous year’s 20%) identify inflation as their main challenge next year. 
  • 390,000 companies shut down in the UK in one year (2020–2021).

In a marketplace where 20% of all new businesses fail in their first year of operation, startups and entrepreneurs need aid and support, as well as a firm hand from the government on the reins of inflation. 

How SMEs are Feeling About Themselves

Well, after seeing the impact of inflation on the SMEs, it’s time to look at the bigger picture, which can be represented by how the SMEs are feeling about themselves. Despite the inflation, SMEs are generally optimistic about their prospects, which shows the resilience of the current UK economy.

Let’s take a look at some key points, according to Barclays’ quarterly SME Barometer research.

  • 41% (the highest in 9 months) of UK-based SMEs feel optimistic about the prospects of their business (15% feel pessimistic in this aspect). 
  • 55% are expecting their revenues to grow compared to the same period last year.
  • 33% are planning on recruiting new staff in 2023.

Recovery Loan Scheme: the Government’s Answer?

In the middle of 2022, the British Chamber of Commerce extended its running Recovery Loan Scheme for two more years. This scheme focused on backing SMEs that face increased financial pressure by providing government-backed loans.

Since its launch in April 2021, this scheme has supported thousands of small and medium sized businesses (19,000 as of July 2022, with an average of £202,000 each) in recovering from the devastating COVID-19 pandemic and continues to support businesses in the challenging marketplace today. 

The loans offered can range as high as £2 million so that small businesses can invest, recruit, and grow. The lenders are also third parties who are guaranteed 70% of the loan return by the government (in case the borrower fails to do so). 

There is also further government support involved, as businesses struggling with cost pressures can benefit from measures such as an increased employment allowance, reduced taxes on fuel, and a 50% business rates reduction for eligible high street businesses. 

This scheme deserves to be applauded for its focus on conserving small businesses, which are the driving force of the future UK economy.