Confidence Amongst Manufacturing SMEs Plateaus

SMEs in manufacturing continue to feel confident about the economic outlook in the UK but their confidence appears to have peaked, says the latest survey by the Tenon Forum conducted by NOP World. The Tenon Forum is an independent think tank made up of leading entrepreneurs from the UK's small and medium sized business community. Just over two thirds (68 per cent) of those surveyed in the manufacturing sector said they felt positive about the impact of the wider UK business environment on their business prospects for the next 12 months, 5 per cent down on the last survey findings from the panel.

The Tenon Forum's report suggests that confidence amongst manufacturing SMEs has reached a peak and now we are seeing the first signs of a downward turn in the sector. It places responsibility for this partly on the political uncertainty ahead of elections in the USA and the UK, and partly on the impact of personal financial considerations. The precarious state of pension funds and constant speculation on an imminent house market crash makes it more difficult for entrepreneurs than managers of larger organisations to feel confident about their business outlook.

Jolyon Stonehouse, Chairman of the Tenon Forum comments: "The Tenon Forum believes that this survey result could denote the climax in entrepreneurial confidence for this cycle. Worries about personal financial issues - such as house prices and recent interest rate rises - clearly could translate and impact into worries about their business."

Overall, confidence is declining in most industry sectors, with the exception of Construction, which has seen a small increase of two per cent. Finance and Business Services are still the most confident sector at 76 per cent. Less positive again is the Transport and Communications sector, where 32 per cent now feel negative, compared to 23 per cent six months ago. Rising fuel prices have placed pressure on distribution businesses in this sector and those who rely on them.

Most worryingly, given the bellwether role consumer confidence is playing in the British economy, confidence in Retail, Leisure and Utilities is now lower than all other sectors, with the exception of Agriculture, Mining and Fisheries. The cumulative effect of interest rate rises may now be affecting retailers' confidence, and there was no doubt relief that for October, the Bank of England has decided that they should remain at 4.75 per cent. The proportion of SMEs with a positive outlook in the Retail sector group has dropped from 72 per cent in Autumn 2003 to 64 per cent in Spring 2004 and 59 per cent in Autumn 2004.

Jolyon Stonehouse continued: "As the UK economy prepares itself for Christmas, it appears that SMEs in retail are not expecting a high-street spending frenzy. If consumer confidence is underpinning the British economy, then the outlook does not look particularly healthy."

Whilst fears about the economy at large grow, SMEs appear less concerned about their own business prospects. Despite a decline in confidence of 5 per cent about the wider UK business environment confidence amongst SMEs in manufacturing about their own business prospects dipped just 2 per cent.

Regionally Scotland has seen the biggest increase (15 per cent) in optimism since the last research, and now tops the UK in terms of optimism (94 per cent).