'Business activity among UK's SMEs expanded at solid rate over first quarter of year'

The index recorded a reading of 52.6 in March, according to the latest data. A PMI reading over 50.0 indicates growth or expansion, while a reading under 50.0 suggests contraction.

The recovery in overall SME output levels was driven by improving order books, with new work increasing for the fourth month running in March.

The statement added: “Leading the way, the services sector recorded the fastest upturn in business activity in March, recording 53.2, followed by the manufacturing sector, which recorded 51.4. SME construction output meanwhile near-stabilised in March at 49.6, which also represented an improved trend after stronger declines in activity in the second half of last year.

“In the latest survey, SMEs reported another sharp rise in their average cost burdens, especially those in the service economy, largely due to rising salary payments and transportation costs. However, the overall rate of input price inflation was the slowest since November 2023. Efforts to alleviate margin pressures nonetheless led to the fastest rise in prices charged by SMEs since June 2023.”

Commenting on the latest survey’s results, Sebastian Burnside, NatWest Chief Economist, said: “Businesses have shown great resilience in the face of challenging market conditions as rocketing inflation and then rising interest rates made their mark.

"So, it’s good to see that firms are now reporting much more muted inflationary pressures at the same time as five months of growth in a row. When it comes to job creation, the picture is more varied.

"Higher levels of SME employment largely reflects greater recruitment in the service economy, while hiring trends were much more subdued in manufacturing and construction.

"But optimism about future activity is widely shared with both services and manufacturing registering scores of above 70.”

James Holian, Head of Business Banking at NatWest Group, said: “It’s really encouraging to see small businesses have had a strong start to the year and remain optimistic about their future growth. The recovery in output has been driven by improving order books, with new work increasing for the fourth month running in March.

"This suggests that falling inflation and hopes of lower interest rates is leading to an upturn in economic conditions, which is likely to support growth in the year ahead.

Mr Holian added: “These findings show that over half of UK SMEs plan to spend on electric vehicle infrastructure or have already done so.

"As well as the environmental benefits, many businesses stand to benefit financially in the long term by transitioning their fleets.”