UKI SME confidence rises amidst economic optimism

Vistage has released its quarterly UKI SME CEO Confidence Index for the second quarter of 2024. The survey results reveal a notable optimism among business leaders regarding the economic outlook for the UK and Ireland in the coming year.

The study, which includes responses from 184 UKI SME leaders, shows that 44% of business leaders believe overall economic conditions in the UK and Ireland have improved compared to a year ago. In contrast, only 15% feel that conditions have worsened within the same period. Furthermore, 62% of SMEs are confident that their firm's sales revenue will increase over the next 12 months, with half of those surveyed expecting an improvement in profitability rates as a result.

The quarterly report indicates a growth in overall business confidence, increasing by 3.9 points to 111.6 since the first quarter. This suggests that SMEs are adapting to and navigating current economic challenges effectively.

Despite rising costs, particularly in labour, 50% of all business leaders feel confident that their firm's profitability will improve. Moreover, higher interest rates have not had a significant impact on businesses, with almost half of all respondents, or 47%, reporting no current effect on their operations. A notable portion of SMEs, 42%, have also increased their investment expenditures to meet future consumer demand.

Inflation remains a key concern, with 66% of business leaders identifying labour costs as the primary source of inflation affecting their operations. Just under half, 42%, anticipate that inflationary pressures will increase more slowly in the coming year. In terms of workforce compensation, 40% of businesses reported modest increases in salaries of less than 10%, while a combined 18% experienced either no change or a decrease in salary compensation.

The report also sheds light on the cautious stance SMEs are taking towards AI adoption. Only 35% of SME leaders are actively testing AI for select functions, and a mere 12% are currently using AI in daily operations. Additionally, 33% of SMEs have increased technology spending to incorporate AI capabilities, whereas more than half have reported no change in their investments. Furthermore, 47% of SMEs recorded no adjustments in personnel staffing and training in response to the advancements in AI, while just 35% are actively training their existing workforce to integrate AI functionalities.

Andy Perkins, MD of International Operations (UK) at Vistage, said: "Despite facing significant challenges from rising labour costs, inflationary pressures, and the rapid advancement of AI technologies, UK and Irish SMEs continue to show strong resilience and general optimism regarding their future prospects. Regardless, the election could usher in an era of change. SME bosses who can demonstrate strategic foresight and adaptability, while also investing in innovation and workforce upskilling, will be better able to maintain competitiveness amongst any upcoming political and economic change."