SME service sector new business orders and employment levels in the third quarter of 2005 were the lowest since Q2 2003, according to the 'PKF SME Index', a quarterly survey of 800 SMEs in the construction, manufacturing and service sectors.
Although the SME construction sector reflected the overall stability of the housing market with arise in output to 58.0 from 54.0 in Q2, (where marks above 50 indicate expansion and marks below 50 indicate contraction), service sector output was down to 51.9 from 53.8 in Q2, the weakest growth since Q2 2003. SME manufacturers hauled themselves back from the brink of a technical recession by recording a small increase in output growth of 51.1 compared with 48.0 last quarter.
After a quiet summer, SMEs are now entering a traditionally busy season but anecdotal evidence fromsurvey respondents indicates that a number of underlying trends are eating into business confidence and profitability. The main one is continually rising input costs (up from 57.5 in Q2 to 60.1 in Q3). The high costs of fuel and energy are affecting every region and industry sector and are cited by survey respondents as the main reason for their increasing running costs.
The impact of continuing poor retail sales is also having a knock-on affect on both the constructionand manufacturing sectors as retail building projects are put on hold and retailers cut back on orders from suppliers. One manufacturer said that "interest from the retail sector appears to have collapsed by 50 per cent in what should be our busiest period".
There is also evidence that growth is weaker in companies with fewer than 49 employees than formedium sized companies and UK businesses as a whole. Output in Q3 was 52.0 for small companies, 52.9 for medium sized companies and 54.4 for all UK private companies.
The growth rate of business output improved slightly in London & South East , the East, and theMidlands, which had plunged to 49.4 in Q2 for the first time since the beginning of 2003. Employment fell in three regions including the Midlands which has now had two quarters of contracting employment figures. The SME Index figures reflect National Statistics which show a flat trend in both employment and unemployment rates throughout the UK.
Stuart Barnsdall, partner specialising in growing businesses at PKF, said: "While the overallfigures for the third quarter reveal continuing but weakening growth, SMEs are increasingly concerned about the 'lack of consumer confidence', 'increased competition', 'poor economic outlook', and the 'depressed UK retail market'.
"Company liquidations are also on the up again after more than two years of steady decline and theword on the street is that the number of retailers going to the wall will escalate over the next few months. The good ship, SME Sector, may still be in relatively calm waters but the journey to the end of 2005 will definitely not be plain sailing."