Key Findings
- UK SME optimism has reached its highest point for 11 months, with falling inflation and improving supply conditions boosting business confidence
- Service economy drives growth, as manufacturing stagnates and construction activity falls
- Prioritisation of climate action falls to its lowest point in over three years, with only 1 in 3 SMEs intending to take action in next 12 months
Our latest research shows that UK small and medium sized companies (SMEs) saw a return to growth in the first quarter of 2023, following a reduction in business activity throughout the second half of last year, according to the latest NatWest PMI survey data.
The swift recovery in SME business activity largely reflects a strong upturn across the service economy. This sector recorded the fastest rate of expansion since April 2022, helped by improved business and consumer confidence, falling input prices and strong inflows of new business. In contrast, SME manufacturing output stagnated during March, and construction companies indicated a renewed decline in business activity.
Sustainability action plans at UK SMEs
We also asked SMEs about their sustainability ambitions as part of our research.
The key findings were:
- Despite an improving outlook for business activity and inflation, SMEs indicated that their prioritisation of sustainability dipped again in the first quarter of 2023
- At 36%, down from 39% in Q4 2022, the headline index measuring the percentage of SMEs intending to prioritise climate action over the next 12 months is now the lowest since the survey began in Q1 2020
- The percentage of large firms citing sustainability action as a high priority was the greatest since the survey began three years' ago
James Holian, Head of Business Banking, NatWest said:
“It is encouraging to see SMEs reporting a return to output growth in Q1 of this year, following a challenging second half of 2022 that was compounded by wage pressures and increased running costs. Thankfully some of these pressures are now slowing, and businesses are reporting their highest confidence levels in over a year.
“However, it’s concerning that climate and sustainability efforts appear to have taken something of a back seat while SMEs have focussed on more immediate challenges. Green plans must remain a priority for all UK businesses, helping reduce their emissions and costs in the long term. As the UK’s biggest bank for business, NatWest is here to support SMEs with their next steps in climate and sustainability, and we encourage businesses to get in touch with us to find out how we can support.”
