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Business confidence among small and mid-cap quoted companies has reached a two-year high, according to the latest quarterly QCA/BDO Small & Mid-Cap Sentiment Index.

The QCA/BDO Index this quarter reveals that 67% of small and mid-cap companies are optimistic about the prospects for the UK economy over the next 12 months, compared to only 8% at the same time last year. The confidence score of advisors to these companies has also climbed to a record high – from 51.8 to 61.1[1]. This is the fourth consecutive quarter that the QCA/BDO Index has shown an increase in both advisors’ and companies’ optimism towards the UK economy, signalling that the recovery is gathering pace.

Companies’ optimism about their own prospects remains high this quarter, with incremental growth from 65.4 in April to 65.5. This means that confidence is now only slightly under the report’s highest ever reading of 66.1, indicating that companies feel better prepared to face the challenges ahead. 

Scott Knight, Partner, BDO LLP commented: “Small and mid-cap companies have reached a turning point, and if we see these levels of optimism continue I am confident that within a year this will translate into a meaningful and sustained recovery.”

Tim Ward, Chief Executive of the Quoted Companies Alliance, said: “Small and mid-cap companies are beginning to motor. The pickup in the economy appears to be translating into real-economy results, which suggests that those companies who previously expected their turnover to fall now see an improvement in their prospects. The engines of growth are on the move.”

Positive sentiment around future prospects is mirrored by companies’ turnover expectations. Despite the fact that the number of companies expecting turnover to increase over the next 12 months fell slightly this quarter (down 1%), the majority still expect an increase (74%).The strength of this expected turnover growth increased to an average of 12.5%, up from an average of 10.1% last quarter.

In support of this, companies’ optimism has also extended to employment intentions. More than two thirds (68%) of companies now expect to recruit staff over the next 12 months – a significant upturn from 57% in April. Advisors’ views mirror this, reaching a record high, with almost three quarters (72%) expecting job growth.

Scott Knight, Partner, BDO LLP continued: “There are indications of a marked change in attitude amongst small and mid-cap companies. Directors are finally planning for expansion rather than survival and seem prepared to put money where their mouths are. Improved employment intentions alongside the steady growth in confidence are very encouraging signs.” 

Where an upward trend is less apparent is around the ease of raising capital. The QCA/BDO Index reveals that advisors in particular do not expect to see an improvement in the ease of raising capital. Companies believe that raising capital has become a little easier since April, but the indicators for all the sources of finance asked about remain stubbornly below the 6.0[2] mark that would begin to indicate that companies think it is easy to raise finance, and have lingered there since January.

Tim Ward, Chief Executive of the Quoted Companies Alliance, observed: “Despite the overall improvement in sentiment, there remains scepticism about the availability of finance. This could be a roadblock to continued growth expectations. Advisors in particular still see finance as a key obstacle and view every source of capital as difficult to access. We need to see greater access to permanent capital.”

[1]Scores are based on a scale between zero and 100, where the 50 mark separates pessimism from optimism.

[2] Where 10 is Extremely easy and 0 is Impossible

Click here to download the release (pdf)

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