The latest figures show UK businesses investing more, but the appetite to expand remains weak among smaller firms. Larger listed companies can still attract investors, while many smaller businesses face tighter lending conditions and uncertain demand.
The Bank of England's October Credit Conditions Survey found little overall change in the availability of business loans in the three months to the end of August. But lenders said credit became harder to access for small and medium-sized firms, while availability for larger companies was unchanged. Lenders also reported falling demand for loans from smaller businesses. The Bank's regional agents say lenders prefer larger, existing customers.
Steven Fine, chief executive of investment bank Peel Hunt, is more upbeat about established listed companies. “There is absolutely no shortage of money whatsoever to back them” for those in the FTSE 250 and above, he says, but he’s talking about raising money from investors rather than bank loans.
Sales hopes, investment doubts
A British Chambers of Commerce survey shows why smaller firms are cautious. Of the more than 4,300 respondents, 92% were small or medium-sized businesses. Nearly half (47%) expected sales to rise over the next year, yet only 17% planned to spend more on plant, machinery or equipment over the next three months. Another 22% planned to cut back.
These figures cover different periods, but they reveal a gap between sales expectations and spending plans. Inflation worried 60% of firms, while 52% cited taxation. For a company considering expensive equipment, hopes of better sales may not be enough to justify the cost.
"Larger firms are driving any improvements to indicators, while the smallest businesses have seen sales and cash flow fall further," says David Bharier, deputy director for economics and insight at the Chambers.
Official figures offer a more encouraging picture. According to the Office for National Statistics, UK business investment rose 1.8% in the second quarter and was 5.2% higher than a year earlier. These figures account for inflation. Spending on buildings and other structures contributed most to the quarterly increase.
The two sets of figures measure different things. The ONS records investment already made across the economy, including spending on buildings. The Chambers asks mainly smaller firms about future purchases of equipment. Large projects can also continue long after the decision to fund them.
What the money buys
The Bank's regional agents report some improvement in investment plans, although from a low starting point. Manufacturers and warehouse operators are considering automation to reduce labour costs. Some delayed projects are going ahead, but construction and property firms remain cautious. Some of this spending is aimed at cutting costs rather than expansion.
Listed companies have their own concerns. According to EY-Parthenon, UK-listed firms issued 65 profit warnings in the third quarter, the highest quarterly total in nearly two years. Policy changes and geopolitical uncertainty were factors in 54% of them. Profit warnings are not a direct measure of investment, but they help explain why boards may hesitate before making big commitments.
Fine believes greater political stability could encourage companies to expand.
“If you're getting growth anyway, just think what stability could really mean," he says. National investment may be rising, but smaller firms will make their own calculations. They need confidence in future sales and a realistic way to fund expansion.
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