The end of March and beginning of April heralds the time where economic institutions can comment on the growth of the UK economy, marking the end of quarter one. The trend at the moment seems to be one of tentative optimism; the economy is growing but is still rather weak i.e. still not at the level seen in 2007 before the recession.

The UK is on the brink of lasting recovery according to the Organisation for Economic Co-operation and Development (OECD). The international think-tank in early April said the UK was at a “potential turning point” and declared that the world’s leading economies had “regained momentum” in a more positive assessment of the UK’s prospects. The findings were made in the OECD’s composite leading indicators (CLIs), which has been quite accurate in predicting the economic outlook six months in advance. 
The OECD made the judgment on the UK because the CLIs have indicated an improvement in activity for January and February. Yet, it was also suggested by the figures that the recovery might be fragile as February’s improvement in activity was “weaker than in last month’s assessment”.

At the beginning of April the British Chamber of Commerce (BCC) announced the results of its Quarterly Economic Survey (QES). The review comprised responses from 8,000 businesses across the UK and showed encouraging results for Q1 2012. Domestic orders balances have improved over the last quarter but remain below pre-recession levels. The manufacturing and service sector balances for home deliveries and forward-looking orders rose to the strongest levels since Q2 2011. This is a repeating theme throughout this quarter.

According to the BCC’s QES, exports strengthened for both the UK’s manufacturing and service sector. A modest improvement as they were stronger than domestic orders, yet still below pre-recession levels. In terms of employment this quarter, the service and manufacturing sector have both been expanding their workforce. Manufacturing grew by 16% from last quarter but service only grew by 2%. What is encouraging is that firms surveyed were optimistic about future recruitment.

So what do the British Chamber of Commerce’s QES and the OECD’s figures mean for UK SMEs? Well, to start with confidence among businesses has increased on the previous quarter, but remains weak by historical standards, particularly for services. It is encouraging that SMEs are feeling more confident at the start of 2012 than at the end of 2011, however it underlines the need to support and promote growth and investment. Access to finance is still a problem for many businesses, the QES balances measuring cashflow remain weak, and in negative territory for services. The manufacturing cashflow balance fell one point, to +1%, and the services cashflow balance rose four points, to -4%. In order to help ‘stop’ the gap in business funding the Government, in the 2012 Budget, committed itself to allocating £100 million to invest through non-traditional channels and platforms. These alternative finance companies, like MarketInvoice, that might benefit from the investment can help the SME finance problem thus helping growth. John Longworth, Director General of the BCC called for “more radical measures, such as a state backed SME lender, should be implemented to address the gap in business funding.” The Quarterly Economic Survey highlighted that domestic demand is still weak and implied that unemployment is still likely to increase to approximately 2.9 million through the year, this is why David Kern, the British Chamber of Commerce’s Chief Economist commented that “every effort must be made to boost growth and empower the private sector to create jobs.”

Further Reading

• BCC: Encouraging signs from UK businesses, but growth is still too slow
• UK on brink of lasting recovery, OECD finds