SMEs show confidence in their future

On the surface this is great news for the country, but wage growth has slowed and, even with Brexit yet to happen, the effects of the EU referendum vote in 2016 are already being felt by many businesses and their employees.The latest QCA/YouGov Small & Mid-Cap Sentiment Index shows that more than three-quarters of small and mid-sized quoted companies expect to increase the number of employees in the next 12 months at an average job growth rate at 8.5 per cent - the highest we’ve seen since we started the Sentiment Index seven years ago. However, around a quarter of these companies report that they have found it harder to attract and retain EU nationals for roles since 2016.The number of European Union nationals working in the UK in 2017 was 2.28 million, down 86,000 from the previous year. The companies we surveyed report that many (non-UK) EU nationals are being deterred from taking or remaining in jobs in the UK because they lack certainty about their future status, and feel that the UK is now a less-welcoming place.One survey respondent noted that: "The uncertainty caused by Brexit has caused the most talented to look elsewhere for work.” Another said: "We have had people leave to go back to the EU because of hostility they sensed living and working in the UK.” Whilst we analyse survey findings and look at the data, it’s important to remember that these are people’s lives that we are talking about here.The decline of the pound has also made working in the UK less attractive for foreign workers, with salaries paid in other countries becoming higher relative to those in the UK.Of the companies we surveyed, 13 per cent stated that their business’s growth is being curtailed as a direct result of skills shortages relating to Brexit. Whilst this is a minority, it is a significant proportion and it’s alarming that many small and mid-sized companies in the UK are having their development stunted by political uncertainty.Of course, these businesses are not sitting back and complaining - they are looking for ways to adjust and mitigate the impact. The actions they are taking can be broadly grouped together in three areas: Firstly, they are looking to recruit more either from the UK or from non-EU countries. Some companies noted they were “fighting harder over a small local pool of workers”, others are looking to hire school or even prison leavers in the UK. These are positive moves, but companies report mixed success. Others mentioned that they were targeting potential employees from other places beyond the UK and EU.A second step some companies are taking is to move jobs outside of the UK. This is likely to be a more worrying trend for the Government. One respondent noted: "We can move the roles to a EU base or to the US.”The third action may be the most worrying for policymakers - increasing automation to reduce the need for labour. As one company noted: "We are automating our processes so we require 25 per cent fewer people.”This could be either a great improvement for UK productivity or an economic drag if unemployment rises as a result.Of course, there are things that the Government can do to end the uncertainty affecting businesses.The companies we work with want clarity on the UK immigration system. It’s more than two years since the EU referendum and the realisation that there is a high probability that the UK is no longer a part of the system of free movement of labour between EU countries. However, there is no certainty on what will replace this. Companies want the new system to be able to ensure skilled labour from the EU can still be recruited easily after Brexit and/or to make it easier to hire from outside the EU when the UK skills pool is not sufficient.As a final note on the companies we work with, whilst their outlook on the UK economy remains muted due to Brexit and political uncertainty, they remain resolutely optimistic about their own prospects. That is, the UK’s growth companies might see challenges, but their confidence to overcome these and thrive remains. These companies are looking to grow and employ more people, but, as our survey shows, how they go about fulfilling that increase is a key cause for concern.