The Barclays business sentiment survey Smaller businesses holding their nerve

2016 was certainly an eventful year, not least for British businesses, it was a year in which a lot of uncertainty has been unsettling for many. However I am pleased to say that since the EU referendum result, I’ve spoken to many people who are positive about their own business’ prospects, a sentiment that has been borne out in the results of our survey.

With major change, uncertainty often follows, but where there is change there is also opportunity for business. We can see that two thirds of businesses will be keeping their trading levels with overseas territories at the same level – and this sensible ‘wait and see approach’ came across throughout the survey results.

In many ways though, this is the best time to seize the opportunities of overseas trade. While the pound remains weaker against currencies like the euro and US dollar, UK exports are more affordable than they would have been this time last year, so it’s fantastic to see that 6% of businesses plan to export for the first time in 2017.

However, the market expects the pound to strengthen against the euro in particular in the wake of continued political and economic upheaval within the Eurozone, so this is an opportunity that could be short-lived.

It is also encouraging to see that the majority of businesses plan to continue their capital expenditure and employment plans, and an incredible prediction of average business growth of 4% for this year shows that the business community is resilient and quietly confident.

At Barclays, we recognise that having a degree of certainty in future planning is essential in order to make these investments.That’s why in 2016 we lent over £5.4bn to smaller businesses in the UK, and we plan to make at least this much available again in 2017 to support businesses.

All eyes will be on Westminster and Brussels as negotiations for Britain’s departure from the EU get underway, but our customers should know that even if their outlook is looking less clear, their bank is on their side and will support them to seize the opportunities and face the challenges ahead.

Viewpoint from Adam Rowse, Head of Business Banking, Barclays

2 of 7

How confident are UK businesses?

The majority of SMEs in our survey (44%) say that their confidence in the UK economy in 2016 has remained the same. This is far from doom and gloom, but a third (35%) say their confidence in the economy has decreased, compared to around a fifth (22%) who say it has increased. Larger SMEs appear to be slightly more confident in the economy than smaller businesses.

When asked about confidence in their own businesses during 2016, the results are fairly similar. More than half (56%) say this remained the same, with a fairly even split between those saying their confidence has increased (21%) or decreased (23%). Larger businesses were more likely to say confidence in their own businesses has increased compared to their smaller counterparts.

This ‘business as usual’ attitude also applies to the year ahead, despite uncertainty surrounding the Brexit process. Nearly half of SMEs say they expect confidence in the UK economy to remain the same in 2017. Of the rest, there is again a fairly even split between the optimists and pessimists.

Although businesses generally appear to be less confident than in our survey last year, when 40% thought that confidence in the economy would increase, expectations for turnover suggest cautious optimism.

Confidence among Britain’s businesses is holding up well despite the uncertainty surrounding Brexit, according to the results of the Barclays business sentiment survey.

Our latest research, carried out in November 2016, asked over 1,000 businesses for their views on the economy and business conditions now and in the future.

The majority expect business to remain steady in the year ahead. This is true for most measures, including turnover, capital investment, overseas trade and hiring. But while SMEs appear determined to remain ‘open for business’, not surprisingly they want more clarity on Brexit.

Smaller businesses holding their nerve

44%of businesses say their confidence in the UK economy 2016 has remained the same

3 of 7

Since January 2016 has your level of confidence in the general UK economic climate increased, remained the same or decreased?*

Increased DecreasedRemained the same0%

5%

15%

10%

20%

25%

30%

35%

40%

22%

44%

35%

45%

Brexit tops concerns

Unsurprisingly, the overwhelming concern of the smaller businesses in our survey is the impact of Brexit negotiations. This is followed by concerns over general uncertainty within the eurozone and inflation, due in part to the devaluation of sterling since the EU referendum. Exchange rates feature prominently alongside Brexit in survey respondents’ comments, with the benefits to exporters balanced by concerns over the impact of the rising cost of imports. Other concerns highlighted by the survey include domestic demand for goods and services and interest rates.

The main concerns highlighted by our survey are no great surprise, given that the vast majority (86%) of respondents say the EU referendum result has impacted on their confidence in the general economic climate, with 64% believing the impact to be medium or higher. The responses to our survey underline just how divisive an issue Brexit is for the UK’s smaller businesses, ranging from those who believe that Brexit can’t happen quickly enough, to those clearly still hoping that the referendum result can be reversed, with a large middle ground saying that they are adopting more of a ‘wait and see’ approach while negotiations get underway.

The overwhelming sentiment, however, is one of uncertainty, particularly over the short-term outlook, making it difficult for businesses to plan ahead. Nonetheless, many responses demonstrate a determination to make the best of the current situation and a hope that the UK will weather the storm of a short-term slowdown in the economy and emerge stronger.

There is a strong desire among those we surveyed for the government to take account of the needs of the UK’s smaller businesses in its approach to negotiations and to act decisively and quickly to end uncertainty.

Top three concerns for smaller businesses

4 of 7

What are your growth (turnover) expectations for 2017?*

Negative growth

No growth

0%

5%

15%

10%

20%

25%

30%

35%

40%

9%

33%

1-10% growth

11-20% growth

45%

>21% growth

4%

45%

50%

9%

1. Impact of Brexit negotiations

2. Uncertainty within the eurozone

3. Inflation

?

Growth expectations

While just over 40% of businesses expect no or negative growth in turnover, slightly more (45%) expect growth of up to 10%, and a further 9% hope to see growth figures of between 11 and 20%. Overall, our research indicates average expected growth of 4% among all the businesses surveyed, well ahead of most growth forecasts for the UK economy as a whole for next year. Barclays forecasts GDP growth of 0.4% for 2017.

4%Our research indicates average expected growth of 4% amongst the businesses surveyed

International trade

Nearly two-thirds (64%) of respondents say they do more business with domestic compared to overseas clients, while 18% say it is about the same and 11% do more business with overseas clients. Despite the attention currently focused on the UK’s overseas trading relationships and the importance of international competitiveness, it appears that UK businesses are still relatively focused on domestic markets. Of those that trade overseas, the majority (78%) mostly trade with Europe, while 12% mostly trade with North America. When asked about their intentions regarding trading overseas during 2017, two-thirds (64%) said they expected to maintain current trading levels, 15% said they expected it to increase and 6% plan to start trading overseas for the first time.

Many respondents highlight the potential for new trade opportunities beyond Europe. While the pound remains weak, there is clearly an opportunity for UK exporters to steal a march on international competitors, a view supported by many of our survey respondents in their comments.

There was little consensus among the businesses surveyed over the trade model they would prefer to see in place post-Brexit, with opinion evenly split between the Swiss, Norwegian and Canadian models, while 20% of those surveyed said they didn’t know – again suggesting that businesses are looking for more direction from government.

It is worth noting that the majority of our survey was carried out prior to the US Presidential election, so attitudes to US trade may have changed subsequently.

64%of businesses expect to maintain current international trading levels in 2017

Increase Plan to startRemain the same

0%

10%

30%

20%

40%

50%

60%

70%

15%

64%

6%

What are your intentions with regards to trading overseas during 2017?*

Find out how to take your business across the globe at barclays.co.uk/international

5 of 7

How do expectations in different UK regions compare?

Comparing turnover expectations for the next 12 months for different UK regions, those in Wales appear to be the most optimistic, followed by businesses in the North East and Northern Ireland. By contrast, businesses in the South West, South East (excluding London), and Scotland are the least optimistic.

We also asked the businesses in our survey for their views on whether devolution of central powers is important to the economic success of their region. A third (32%) of businesses agreed that this is important, while 39% said it is not and 29% were unsure.

Although the results of our survey on this issue this year are broadly similar to last year, one notable exception is Scotland, where last year 54% of businesses agreed that devolution of power is important, and this year it has dropped to 34%.

Find insights for your local area at insights.barclays.co.uk

Plans for investing in capital and people

Looking at expectations for capital investment for the year ahead compared to the last 12 months, 23% of respondents expect this to increase, compared to 12% who expect it to fall, while 65% say they expect it to remain the same. However, the outlook for capital expenditure is different depending on the size of business surveyed – 32% of larger SMEs expect capital investment to increase compared to 18% of smaller SMEs.

It is clearly critical that the UK’s smaller businesses continue to invest to improve their productivity and maintain competitiveness, especially in international markets. At Barclays we are committed to continuing to support this investment by making finance available to these businesses.

Our survey shows similarly positive hiring intentions for the next 12 months. While two-thirds (67%) expect hiring levels to remain the same as last year, a quarter (23%) expect it to increase, compared to just 11% who expect it to fall.

Larger SMEs are generally more optimistic about future hiring, with a third (34%) expecting an increase, compared to just 11% for smaller SMEs. Attracting and retaining people with the right skills will no doubt remain a key challenge across many industries, given current levels of employment and possible future restrictions on recruitment from overseas. Many businesses surveyed say that there will continue to be uncertainty over future investment plans and job creation until Brexit terms are agreed.

34%of larger SMEs are expecting future hiring to increase

Increase DecreaseRemain the same

0%

10%

30%

20%

40%

50%

60%

70%

Plans for investing in people and capital*

18% 16%

Hiring intentions

Expectations for capital investment

6 of 7

80%70%

75%

13% 11%

barclays.co.uk/business*Figures for graphs have been rounded and in some instances may add up to over 100%. In this report, SMEs are defined as businesses with less than £6.5m turnover. We have also looked at differences in views between smaller SMEs (less than £1m turnover) and larger SMEs (with turnover between £1m and £6.5m) where relevant.

Research was carried out among 1,010 UK businesses between 3 November and 11 November 2016 by Critical Research on behalf of Barclays. We surveyed a varied sample of business owners and c-suite executives in 880 small to medium sized, and 130 corporate businesses. Final data has been weighted to be nationally representative in terms in region and company size.

Barclays Business is a trading name of Barclays Bank PLC. Barclays Bank PLC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (Financial Services Register No. 122702). Registered in England. Registered No.1026167 Registered Office: 1 Churchill Place, London E14 5HP.

IBIM6341 January 2017.

CONFIDENCEWE ASKED MORE THAN1000

BUSINESSES ABOUT THEIR

FOR2017

“LET’SGET ON

WITH IT!”

INCLUDING 800SMALLER BUSINESSES

...ARE THEIR

TOPWORRIES

3BREXIT NEGOTIATIONS...

...EUROZONEUNCERTAINTY...

€

...AND EXCHANGERATE VOLATILITY €

£

CAUTIOUSOPTIMISM

THE MOOD IS OF

86% MAINTAININGOR INCREASINGINVESTMENT 90% INTEND TO MAINTAIN OR

INCREASE RECRUITMENTLEVELS

...ANDDOMESTICDEMAND

IS ALSO A CAUSEFOR CONCERN

FORGOODSANDSERVICES

“IT’S BUSINESSAS USUAL”

?

FEELING ATLEAST AS CONFIDENT

AS IN JANUARY 2016

65%‘16 ‘17

EXPECT2017TO BRINGGROWTH

58%4%

AVERAGEEXPECTEDGROWTH

OVER

7 of 7