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Business Sentiment Index – optimism slows

The Close Brothers Asset Finance Business Sentiment Index (BSI) continues to track upwards but at a markedly slower rate as the full impact and duration of the pandemic has become better understood.

Click here to view the BSI update in full size

The latest figures have been taken from our regular Business Barometer survey of 900 senior SME leaders, conducted as the second lockdown came into effect.

After falling to just 3.5 in April 2020 after a high of 28.75 at the start of the year, the index rose sharply – in relative terms - to 12.25 four months later, followed by a more modest uptick of 2.25 to 14.5 in December.

Various factors have played a part in the slower growth, including Brexit trade deal uncertainties and the extent of ongoing government support for businesses and individuals; countering this is positivity generated by various vaccine announcements.

The BSI is calculated and based on business owners’:

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

Appetite for investment

Firms’ willingness to invest more than doubled, reaching levels last seen at the turn of 2020. The initial shock of the pandemic has dissipated and with government-backed schemes having been extended, business owners are becoming more bullish with their investment strategies.

Many have also diversified, finding opportunities that may not have been explored in the past.

One obstacle that may stand in the way of investment is some funders’ closing their books to new business

Missed opportunities

Over a third (35%) of companies surveyed have missed a business opportunity due to a lack of available finance - despite the availability of CBILS (Coronavirus Business Interruption Loan Scheme) and Bounce Back loans

As alluded to, many lenders are reluctant to accept new business because of provisions that need to be made for bad debt, making them less willing to be exposed to the risk of non-payment.  

Economic outlook

Positivity about the economic outlook for the UK is edging up into positive territory – but very slowly. These re are currently too many unknowns for business owners to be fully comfortable with where the UK economy is headed and whether it will recover in 2021.

Predicted business performance

In the main, SMEs continue to be unconvinced about their prospects, and while this metric is also improving and moving into positive territory for the first time since January 2020, it’s very slow progress.

Half expect to ‘stay the same’ while a quarter each will either ‘expand’ or ‘contract / close down’.

The least positive areas are East Anglia and Wales, where only 11% and 16% think they will expand, while London (40%), North West England (32%) and North East England (31%) the most optimistic.