Small businesses in Yorkshire showing sign of growth in 2019

Promoted by Yorkshire Bank

Yorkshire SMEs enjoyed a welcome recovery in Q3 2019, following a challenging start to the year, according to new data.

The region’s score in the Virgin Money UK SME Health Check Index improved significantly from Q2. Indeed, the rise was the largest recorded of any region in the UK, and offsets a significant decline seen between Q1 and Q2.

The report from Virgin Money UK, owner Yorkshire Bank and until recently called CYBG, measures SMEs’ performance across eight indicators; business costs, GDP, employment, revenue, capacity, confidence, lending and net business creation. Yorkshire & the Humber was the only region to record an improvement in all of the eight indicators. The largest gains were made in the capacity, confidence and revenue indicators, which suggests the local economy was in good shape over the period.

The value of SMEs’ outstanding loans and overdrafts rose by £112 million in the year to Q2 2019 (the latest data available), providing a positive signal of businesses’ willingness to invest despite the climate of uncertainty.

Yorkshire & the Humber also saw some positive movement in employment. Although the annual rate of employment growth sits below the national average, it returned to positive territory in Q3, after the net addition of nearly 5,000 jobs in the region.

UK as a whole performs well, but challenges remain

The performance of UK SMEs as a whole was also encouraging, with a healthy increase recorded in the headline index score.

However, we should not assume that the UK economy, nor the SME sector, is out of the woods. The overall Index score remains low by historical standards, and a continued decline in the number of vacancies across the UK shows that SMEs are starting to become more cautious about expanding their workforce.

The slow growth in wages and employment figures across the UK comes at a time of heightened political and economic volatility, brought about by the continued uncertainty over Brexit. This volatility rose further in recent months, as the country faced the General Election. As such, it is likely that SMEs – particularly those exposed to European markets – have been delaying their hiring decisions until the economic picture becomes clearer, despite the improving indicators elsewhere in the economy.

Late payment continues to plague SMEs across the country

The report also carried out some detailed research into the topic of late payments, a problem that has long impacted the sector. As part of the research, the perspectives of 1,000 senior SME decision makers were gathered, to help shine a light on the disruption the issue can cause.

The findings were striking. In total, 74% of SMEs reported that they had experienced late payment in the last year, while of those, only 14% said that they had not seen disruption to their business as a result. The Government has recently announced new plans to tackle the problem, promising to strengthen the role of Small Business Commissioner, a role created in 2017 to ensure fair payment practices for small businesses.

While this is a welcome step, more can still be done. Virgin Money supports the Federation of Small Businesses’ (FSB) Fair Pay Fair Play campaign and its three-point plan to tackle the issue. The plan, which calls for greater responsibility for non-executive directors, stronger enforcement of bad practices and the adoption of Project Bank Accounts for major procurements projects, provides policymakers with a set of ready-made and deliverable solutions. We urge other businesses – particularly large organisations – to support the FSB’s campaign.

The region’s score in the Virgin Money UK SME Health Check Index improved significantly from Q2. Indeed, the rise was the largest recorded of any region in the UK, and offsets a significant decline seen between Q1 and Q2.

The report from Virgin Money UK, owner Yorkshire Bank and until recently called CYBG, measures SMEs’ performance across eight indicators; business costs, GDP, employment, revenue, capacity, confidence, lending and net business creation. Yorkshire & the Humber was the only region to record an improvement in all of the eight indicators. The largest gains were made in the capacity, confidence and revenue indicators, which suggests the local economy was in good shape over the period.

The value of SMEs’ outstanding loans and overdrafts rose by £112 million in the year to Q2 2019 (the latest data available), providing a positive signal of businesses’ willingness to invest despite the climate of uncertainty.

Yorkshire & the Humber also saw some positive movement in employment. Although the annual rate of employment growth sits below the national average, it returned to positive territory in Q3, after the net addition of nearly 5,000 jobs in the region.

UK as a whole performs well, but challenges remain

The performance of UK SMEs as a whole was also encouraging, with a healthy increase recorded in the headline index score.

However, we should not assume that the UK economy, nor the SME sector, is out of the woods. The overall Index score remains low by historical standards, and a continued decline in the number of vacancies across the UK shows that SMEs are starting to become more cautious about expanding their workforce.

The slow growth in wages and employment figures across the UK comes at a time of heightened political and economic volatility, brought about by the continued uncertainty over Brexit. This volatility rose further in recent months, as the country faced the General Election. As such, it is likely that SMEs – particularly those exposed to European markets – have been delaying their hiring decisions until the economic picture becomes clearer, despite the improving indicators elsewhere in the economy.

Late payment continues to plague SMEs across the country

The report also carried out some detailed research into the topic of late payments, a problem that has long impacted the sector. As part of the research, the perspectives of 1,000 senior SME decision makers were gathered, to help shine a light on the disruption the issue can cause.

The findings were striking. In total, 74% of SMEs reported that they had experienced late payment in the last year, while of those, only 14% said that they had not seen disruption to their business as a result. The Government has recently announced new plans to tackle the problem, promising to strengthen the role of Small Business Commissioner, a role created in 2017 to ensure fair payment practices for small businesses.

While this is a welcome step, more can still be done. Virgin Money supports the Federation of Small Businesses’ (FSB) Fair Pay Fair Play campaign and its three-point plan to tackle the issue. The plan, which calls for greater responsibility for non-executive directors, stronger enforcement of bad practices and the adoption of Project Bank Accounts for major procurements projects, provides policymakers with a set of ready-made and deliverable solutions. We urge other businesses – particularly large organisations – to support the FSB’s campaign.

Looking forward

The Q3 results are cause for optimism – for both Yorkshire and the UK as a whole. After a challenging start to the year, SMEs are showing definite signs of recovery.

Find out more at Yorkshire Bank.