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Business Sentiment Index – optimism dips as inflation and cost rises bite  

After rebounding strongly to record levels in in 2021, the Close Brothers Asset Finance Business Sentiment Index* (BSI) has continued to fall across all key sectors in 2022.

The rise in inflation has played an important part in the further decline in sentiment, with two thirds of SMEs stating that they’ve been negatively impacted. Only a third of business owners believe that a rise in interest rates is the right solution to dampen inflation, while 55% have raised wages to help employees stay on top of the cost of living. 

The other primary growth inhibitors were listed – in order - as:

  • Material shortages
  • Influence of Brexit
  • Skills shortages

One in 4 respondents have chosen to pass the full cost increases onto customers while a further 50% have done so ‘partially’ (compared to just 24% in February); 23% (36% in February) have chosen instead to absorb the cost increases.

How the sectors have fared

In February, it was the Transport and Haulage sector that saw the most significant fall in sentiment, but just six months later, it’s Manufacturing and Engineering, while Construction has also not fared overly well.

In addition to cost rises, the continued impact of inflation has added to the issues faced by business owners.

Appetite for investment

Firms’ appetite to invest increased across all key sectors – significantly, in some cases – with the latest figures the highest we have on record.

Missed opportunities

The number of companies missing business opportunities due to a lack of available continues to rise, with four in 10 (Feb: 37%) admitting to having lost out. 

With pressure on cash flow, most ambitious businesses rely on additional finance to enable them to invest in growth.

Economic outlook

Across all sectors, business owners are, on balance, more negative than positive about the economic outlook. Few are agnostic on the subject and think it’ll be unchanged. 

Predicted business performance

Firms across all sectors polled are less positive about their predicted business performance than they were just six months ago, as the various headwinds they face continue to bite.

Score calculation*

The BSI is based on the views of 900 business owners and senior members of the UK’s business community and calculated from data charting their:

  • Appetite for investment in their business in the coming 12 months
  • Access to finance and whether they’ve missed a business opportunity through lack of available finance
  • Views about the UK’s economic outlook
  • Thoughts on their likely performance in the coming 12 months