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Business confidence remains high and job creation is at its highest level for four months.

Sebastian Burnside
Chief Economist, NatWest Group

Key Findings

  • Output levels broadly unchanged as customers delay decision-making in June
  • Employment growth at its fastest since February as SMEs backfill vacancies
  • 36% of surveyed SMEs reported sustainability actions as a high priority in the next year

 

UK SME Business performance

Business activity at UK small and medium-sized enterprises (SMEs) stalled in June with our SME Purchasing Managers’ Index recording 49.9, ending a seven-month period of sustained growth. Some surveyed SMEs suggested that decision-making among customers had slowed in the run up to the general election, which led to delays with new projects and subdued domestic demand.

Our index is a key indicator of the health of the UK SME economy. A PMI reading over 50.0 indicates growth or expansion, while a reading under 50.0 suggests contraction.

Despite the slowdown, employment growth was its fastest since February as improved candidate availability allowed firms to fill vacancies and replace departed staff. Hopes of a broader economic recovery, lower borrowing costs and a post-election rise in demand also kept business confidence upbeat at 70.3 in June. 

 

Sebastian Burnside, NatWest Group Chief Economist, said:

“Business activity stalled in June, rounding out a solid second quarter performance overall. A slowdown was to be expected after a strong start to the year and especially rapid GDP growth of 0.4% in May. But some small businesses also pointed to the General Election as a factor which delayed decision-making among their customers and led to subdued domestic demand."

“Price rises have eased in recent months, but businesses and their customers are still feeling the squeeze. Higher staff costs, particularly due to the rise in the National Minimum Wage, have meant services firms have had to pass additional costs onto their customers. Manufacturing firms also attributed higher input costs to rising transport bills, especially for container freight from Asia."

“Despite these concerns, business confidence remains high and job creation is at its highest level for four months. With inflation now back to the Bank of England’s target of 2% many firms are hoping for lower interest rates and an increase in demand from the consumer sector.”

NatWest SME PMI® Tracker

Read the latest insights into UK SME performance and sustainability intentions

PMI® Tracker

Sustainability action plans at UK SMEs

We also asked SMEs about their sustainability ambitions as part of our research.

The key findings were:

  • Sustainability goals across UK SMEs appeared somewhat on the back burner in the second quarter of 2024, as just 36% of the surveyed businesses reported sustainability actions as a high priority in the coming 12 months.
  • However, the latest survey data showed that small and medium-sized businesses are keeping up with and in some cases, outperforming larger firms in terms of having already implemented greener action regarding their supply chains. 12% of UK SMEs have already at least partially reshored their supply chains, compared to 7% of large companies.

 

Commenting on SMEs' sustainability action plans, our Head of Business Banking James Holian said:

“We’re seeing that a sizeable minority of small businesses – some 30% - have already moved their supply chains closer to the UK, and 12% have already at least partially switched to UK-based vendors. And when you look at the next five years, just under a third of small businesses are planning to reshore their vendors.”

“There are various reasons small businesses might move their suppliers to closer to home  – not least to drive down costs, lower their carbon footprint and reduce their risk exposure to geopolitical events. However, there is never a one-size-fits-all solution. My advice to small businesses is to map your mix of suppliers and identify any gaps. Look at where the goods come from, where they go to, and what the capacities of your suppliers are. Speak to suppliers to understand their challenges and work together to develop solutions.”

Supporting customers’ sustainability plans

Find out how we helped timber products business Archwood Group invest in their climate plans.

About the NatWest Sustainable Business Tracker

The NatWest Sustainable Business Tracker is a quarterly report, designed to monitor business performance and sustainability actions at UK enterprises with 1-249 employees. Results are compiled from responses to S&P Global UK Purchasing Managers’ Index® (PMI®) surveys. We track sustainability actions among small and medium-sized enterprises (SMEs) across five main categories. The latest report includes a special feature on renewable energy investment plans for the year-ahead.

The panel of around 850 small and medium sized enterprises is stratified by detailed sector, based on contributions to GDP.

Survey responses are collected by S&P Global in the second half of each month and indicate the direction of change compared to the previous month. A diffusion index is calculated for each survey variable. The index is the sum of the percentage of ‘higher’ responses and half the percentage of ‘unchanged’ responses.

The SME PMI® indices vary between 0 and 100, with a reading above 50 indicating an overall increase compared to the previous month, and below 50 an overall decrease. The indices are then seasonally adjusted. Indices are compiled for a range of survey variables, including business activity, new orders, employment, input costs, prices charged, suppliers' delivery times and future activity.

The SME PMI® data for June were collected 12 – 28 June 2024. Historical data are available from January 1998 for the All-Sector SME Business Activity Index. Manufacturing data are available from January 1992, Services data from July 1996 and Construction data from April 1997.

SME Sustainability PMI® data are compiled on a quarterly basis. The SME PMI® data are compiled on a monthly basis. The latest SME Sustainability PMI data were collected in Q2 2024. In each survey, companies are asked what sustainability plans they are looking to prioritise over the next year, and the results are compared against those seen for large companies.

For further information on the PMI survey methodology, please contact economics@spglobal.com.

 

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