How the UK’s small businesses are managing economic uncertainty

The UK’s small businesses face a number of stark challenges. Job vacancies are at an historic high, inflationary pressures remain stubbornly persistent and Q2 saw the largest number of registered company insolvencies since our index began in 2013. Yet there are some optimistic signs for small businesses as we head towards 2024.

Experian latest SME Credit Trends Index reveals how businesses are responding to the UK’s ever-evolving credit risk landscape.

Despite an uncertain outlook amid high inflation and interest rates, all major sectors demonstrated growth in June, with monthly GDP growing by an estimated 0.5%. The rise, though small, outstripped general expectations. This, combined with the more detailed findings in Experian index, means there’s room for cautious optimism around business growth and new borrowing as we look ahead. Here’s an overview of some of the most important statistics.

A poor performance for SME credit agreements

Delinquency rates rose by 35% over the first six months of 2023 and across all core SME credit products. Almost every sector was impacted, with the biggest increase in arrears seen in those exposed to consumer spending. Accommodation, food services and retail all fared badly. However, default rates eased marginally during summer, sparking hope for improvement.

A shift in business concerns

With inflation falling, albeit slowly, there is no single leading concern shared by all sectors. Even so, the index does show mounting anxiety across the board about a fall in demand for goods and services. Concerns about energy prices are still high on the list for some businesses, particularly those in accommodation and food services, while for others the focus is now turning to the effects of prolonged high interest rates.

Business lending keeps growing

While SME lending levels remain below pre-pandemic levels, early summer saw a return to year-on-year lending growth. Despite fewer traditional business loans and mortgages, there was an increase in asset finance and credit card utilisation. Notably, sustained high inflation and the rising cost of finance have pushed the average asset finance loan value up by 22% in the last year.

For more insights on the current commercial credit risk trends and their impact on small and medium-sized businesses read the full Experian SME Credit Trends Index.

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