Southern UK businesses enjoy an Indian summer by David Saul, MD, Business Environment on 07-Nov-2012

The economic weather may be bad, but businesses in the South of England enjoyed a more pleasant summer than expected, according to a new survey by Business Environment.

A study of 150 SMEs based in the company’s fifteen offices across the South of England concluded that, despite a double-dip recession, many businesses were surprisingly positive about the second and third quarters of 2012.

Nearly half (47%) had increased their headcount during the second quarter of the year and most (62%) had introduced new products or services. When asked about the third quarter of the year, the vast majority (93%) said that they were either 'positive' or 'very positive' about the longevity of their business and a majority (54.4%) said they were confident in the UK economy’s prospects overall.

There could be several reasons for this. Firms can survive in a downturn if they are innovative, if they export or sell to territories that are less affected by the downturn, or if they are counter-cyclical (meaning they sell products or services to people or companies who are cash-strapped). The report’s base does include a large amount of firms who trade overseas and a good proportion in new or innovative industries. However, many respondents represented traditional and UK-facing businesses, so more factors must be at play.

David Saul, Managing Director of Business Environment, said, "It’s a been a gloomy summer for UK Plc, so the survey’s relatively positive tone was a big surprise. Despite the tough economy, many companies are finding ways to thrive - and this is a good sign for the future."

"Obviously, it’s foolish to make sweeping generalisations about a range of companies who work in a range of different markets. However, it’s possible to make some tentative comments."

"It’s possible that some of the relative positivity is because, relative to the current economic data, things are positive. For example, if you are to compare the economic situation in the noughties to the economic situation in 1970s, the decade of the last double-dip recession, we seem to be doing much better."

"We have not yet witnessed anything to compare with the three-day week or the 1972 miners' strike. There may be spending cuts, but there is no mention of the UK applying for an IMF loan as it did in 1976."

"This is a crude explanation, but it chimes with anecdotal evidence I’ve gathered while talking to some of the 10,000 people who work in Business Environment’s offices. Times are tough, people are stretched, and few companies or individuals are currently enjoying periods of wealth. However, things are not quite as bad as the numbers might suggest."

Interestingly, London was the least optimistic part of southern UK during Summer 2012. Q2 saw sustained confidence from the South West - employers in the region were least likely to suffer cash flow issues, with just eight per cent struggling for liquidity, compared to 19% in London and 20% in the South East. Likewise, South West firms were the most likely to have grown, with 77% having expanded throughout the quarter.

Q3 saw sustained optimism from the South East. South Eastern employers were confident about the overall economy (64% declaring themselves either 'confident' or 'very confident') and companies in the South East are the most likely to predict their sector will grow over the coming three months (92% agreeing). Companies in the South East were also most likely to report a quarter-on-quarter increase in turnover (52%).

However, throughout the summer, London lagged behind on most metrics.

One interesting finding was that the smaller the company, the greater the confidence in the UK economy in the coming quarter. 62.5% of self-employed people say they are either 'confident' or 'very confident' in the country’s forthcoming economic performance. This is compared to 55.9% of people in companies with a headcount of between one and nine, 58% of people in companies with a headcount between 10 and 99 and just 50% of people in companies larger than 100.

"In retrospect, Summer 2012 was a remarkably positive time," continued David. "Arguably the Royal Jubilee and the Olympics helped generate a country-wide feeling of wellbeing, many symptoms of which hadn’t been seen on a nation-wide scale since the financial crisis began: optimistic, un-cynical press coverage; a feeling of patriotism; and for the Olympics fortnight specifically, a temporary banishment of negative stories (such the expenses scandal, the hacking scandal, stories about multinational banks) from the public consciousness."

"It is possible that some Olympic optimism spilled through into the results. This doesn’t make the results in any way invalid – a general feeling of optimism has a real impact on the wider economy, even if the exact monetary effect is hard to quantify," concluded David.

For more information or to contact David, please visit: www.beoffices.co.uk

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