Aldermore: The year ahead for Britain's SMEs

For Britain’s small and medium-sized enterprises (SMEs), 2015 was a mixed year. Although the country’s economic recovery continued, with conditions at home improving across most industries, the global macroeconomic environment was far from settled, and indeed global growth weakened throughout the year, offsetting some of the positive impact of the UK’s resurgence.

I wouldn’t be surprised if 2016 turned out to be as much of a mixed bag as 2015. There are already a number of potential impacts on businesses that we know about, although the timing and magnitude of these remain largely unknown. We can probably say with some degree of certainty that the Bank of England will raise interest rates at some point this year, with most forecasts ranging from mid to late 2016. While this will increase borrowing costs for many SMEs, any rate rises are likely to be phased in slowly meaning that the impact should be entirely manageable.

The labour market will represent a key pressure for many SMEs during 2016. Government policies such as the National Living Wage and apprenticeship levy will kick in and while both are laudable schemes, they will disproportionally affect smaller businesses. This is likely to be compounded by wage inflation as salaries continue to be pushed up by the tightening labour market. Low inflation elsewhere may offset some of the impact of increased labour costs, but employees are still the largest cost for most businesses so there will be no getting away from the impact.

The referendum on Britain’s membership of the EU could be the most significant event for SMEs during 2016. Even the timing of the vote, which may still not take place until 2017, has already caused uncertainty and delayed business decisions. Should the British people vote for a Brexit, that is to take Britain out of the EU, the potential impact on SMEs and Britain’s businesses could eclipse anything we’ve seen since the financial crisis. It is such an unknown however, that until it happens, we won’t be able to gauge the full effect.

Despite these factors, Britain’s SMEs are likely to be buoyed by the performance of their home economy. Recently, the Centre for Economics Business and Research predicted that Britain will soon overtake France to become the fourth largest economy in the world. Consumer spending has been on an upward trajectory in recent months, while business insolvencies remain steady and close to pre-crisis levels. What’s more, many believe that we are going through something of an industrial revolution with new technologies appearing across all industries and resulting in lower costs and increased productivity.

The one area where SMEs can take heart as we enter 2016 is that the lending infrastructure to support their growth is well established and they are not short of financial options. Although the big banks are still struggling to raise their SME lending to pre-crisis levels, new entrants have come into the market and are successfully supporting businesses to manage the challenges they face and help them fulfil their business ambitions.

SMEs comprise the majority of businesses in Britain and provide employment for a vast proportion of the UK’s workforce. This is why the success of Britain’s SMEs equates to the success of Britain. SMEs will face a number of challenges in the months ahead but they have shown themselves to be robust over the past few years and are well supported by the range of financing options available to them. While we shouldn’t get carried away, I believe that Britain’s SMEs have cause for optimism in 2016 and beyond.

Attributed to Carl D’Ammassa, Group Managing Director – Business Finance at Aldermore