SME's unaffected by "credit crunch" according to latest statistics

The UK's small and medium sized companies reported continued growth in business activity in the third quarter of 2007. Although the levels of growth slowed in comparison to the sharp increases seen in Q2, SMEs seem largely unaffected by the credit crunch, according to the PKF SME Index, a quarterly survey of 1,000 SMEs in the construction, manufacturing and service sectors.

Business activity grew across all sectors in Q3 to 56.1 (marks above 50 indicate expansion and below 50 indicate contraction). This was just less than last quarter’s figure of 57.0. Similarly, new business orders also increased but at a marginally lower rate – this quarter the rise was 56.1 as opposed to 56.3 last quarter.

Of the three survey sectors, construction again recorded the strongest levels of growth. The Q3 figure was 60.9 which is just less than Q2’s figure of 61.7. Manufacturers also continued strongly and recorded growth of 57.4; while service sector activity eased again in Q3 with the latest rise, 54.5, the least marked for two years.

Anecdotal evidence suggests strong underlying demand and successful marketing initiatives were the key reasons behind the continued growth in activity and new business.

For the manufacturing sector, the main reason behind the growth was the end of the holiday season. The construction sector cited the award of new contracts and growth in education and social housing contracts. The service sector attributed growth figures to seasonality.

Northern England and London and the South East saw the sharpest rates of growth of the regions, reaching 57.9 and 57.8 respectively in Q3. The latest rise in activity in Northern England was the most marked for a year.

The rate of employment growth at UK SMEs in Q3 was the strongest since Q2 2006. In line with business activity growth, construction companies had the sharpest increase, 56.5, and this was the most marked rise since Q4 2004.

Average input price inflation increased sharply again, driven by rising oil prices and the higher cost of many foodstuffs. Nonetheless, the 60.4 increase was the least marked for two years.

PKF partner for growing business, Stuart Barnsdall, commenting on the quarter’s survey results said: “UK SMEs gave another strong performance in Q3 and seem largely unaffected by the summer’s economic chaos. Although the growth was less marked than last quarter, growth in Q2 was particularly high and therefore unlikely to be sustained at the same level.

“However, the fact that growth did slow and input price inflation, while rising, was the least marked for two years, suggests perhaps that the effects of the interest rate rises over the last year are beginning to have an impact.”