At the QCA, we have been tracking the outlook of small and mid-sized companies listed on UK stock exchanges since 2011 as part of our Small & Mid-Cap Sentiment Index with YouGov.
With nearly eight years of data, it provides a real reflection of the past decade of the UK’s economic and political developments.
In this period, you can identify three periods of decreased and increased optimism in the UK economy that correlate with UK political and economic developments:
● 2011-2013: Post-financial crisis pessimism
● 2013-2015: Increasing optimism from the economic recovery
● 2015-2018: Decline in outlook as the 2015 General Election led to the EU referendum and start of Brexit process
The contrast between these three periods is fairly stark. The net optimism of companies in the UK economy in 2011 and 2012 was at more than minus 90 per cent. In 2013, this lessened a little, until in 2014 we’d fully swung into a period of positivity. This lasted until 2015 and then plunged back down and has stayed negative since.
Of course, there will have been many other external factors in relation to this changing sentiment, but this correlation to UK political developments seems to work.
In 2015, we had the reelection of David Cameron’s Conservative Government and the pledge to hold a referendum on the UK’s membership of the EU. The result has impacted UK politics hugely and we are still working out what this means for the country.
One thing that is notable though as well as the outlook on the UK economy, our Sentiment Index also asks companies for how they view their own business prospects, and this has stayed resolutely positive throughout the whole eight years.
What we see historically is that the UK’s small and mid-caps have remained optimistic about their own company’s outlook even when their views on the economy have dropped. In fact, in our most recent survey, around three-quarters of respondents reported that they plan to increase the number of employees in the coming 12 months.
We take encouragement that our small and mid-sized companies are continuing to go about their business, innovating, generating tax revenues and creating jobs.
Whilst no one knows what is going to happen with Brexit or how the UK political system is going to develop going forward, we need to make sure that we facilitate an environment for our smaller companies to flourish and grow.
A big part of this is ensuring that rules and regulations are proportionate to the size of companies they impact. The biggest companies have deeper resources and so can deal with any regulatory burden more easily. The small and mid-sized companies on our markets are unfortunately the ones that then feel the pinch - too big to be exempt, too small to be able to absorb the costs comfortably.
There have been a couple of encouraging steps for this in the past year or so. Firstly, the growth companies on the AIM market have been allowed to choose which corporate governance code they follow. Most decided to follow codes which are flexible and
proportionate for smaller companies. Reducing any potential burden that could take away time and attention from the actual running of the business.
Secondly, the Kingman Review of the Financial Reporting Council (FRC) has set the process in motion for creating a new body to replace the FRC that has in its constitution that it should act in a way that "is proportionate, having regard to the size and resources of those being regulated and balancing the costs and benefits of regulatory action.”
We hope to see more of this and that putting proportionality at the heart of UK business regulation will enable our smaller companies to keep doing what they do best.