Small Businesses see a strong start to 2006

   

The small and medium sized business sector enjoyed a strong start to 2006 as domestic demand picked up, confidence improved and the end of the financial year encouraged customers to make purchasing decisions, according to the PKF SME Index, a quarterly survey of 800 SMEs in the construction, manufacturing and service sectors.

Business output increased to 55.0 from 54.2 in Q1 and new business orders rose to 55.2 from 54.0. Both of these are the highest scores for 18 months (where marks above 50 indicate expansion and marks below 50 indicate contraction). Anecdotal evidence from respondents suggests that customer activity is increasing with numerous references to 'major customer upturn', 'UK demand picking up', 'export orders higher than budgeted' and 'client confidence up'.

Business activity in the manufacturing sector increased for the third consecutive quarter with output up from 53.1 in Q4 2005 to 54.2 – the highest level since Q2 2004. The level of new business orders also rose to 53.7, the highest score since Q3 2004. The three main factors identified by survey respondents for the uplift are stronger domestic demand, more export orders and aggressive selling.

Service sector output and new business growth also continued to accelerate to their highest levels since Q3 2004 at 55.9 and 57.0 respectively. Increased marketing and sales activity and a strong focus on new business were the main reasons behind service companies' good start to 2006.

Across the UK, the North recorded the strongest output growth, rising from 55.2 in Q4 2005 to 55.6, just ahead of London & the South East at 55.3. For the third consecutive quarter, all six UK regions recorded increasing business activity. New business orders also improved throughout the UK with the Eastern region scoring 57.6, its highest score since the end of 2003.

Employment prospects continue to be patchy with slight decreases in the North (49.4) and the Midlands (48.9) but reasonably strong growth in London & the South East (53.7) and the East (52.4).

Input costs continue to rocket at 62.0 – up from 60.2 in Q4 2005. All three SME sectors in the survey are now being seriously affected by the increase in energy costs. This is particularly noticeable in the service sector where the high cost of utilities is now a more cited reason than salaries and wages for rising input costs. According to a recent PKF energy survey, fuel costs rose for 92% of SME respondents during the last 12 months by an average of 22%.

PKF partner for growing business, Toby Stephenson, commenting on this quarter's survey results said:

"While all the business condition indicators for the first quarter are heading in the right direction for growing businesses, the spectre of rising energy costs is not going to go away and the pressure to reduce energy costs and carbon emissions is rising. Energy efficiency is something that all businesses should review on an ongoing basis, continually seeking the most effective ways to curb the ever-increasing burden on both their costs and the environment".