UK's GDP growth points towards recovery from economic downturn
The UK economy showed signs of recovery in February, with widespread growth observed in manufacturing, particularly in the car sector. This positive trend extended a recovery after growth in January was revised up from 0.2% to 0.3%, matching City economists' forecasts [1].
However, the construction sector faced notable falls due to adverse weather conditions, with construction output collapsing by 1.9% on the month. Cranes sat abandoned on building sites as heavy rainfall caused operational slowdowns or halts [2].
The UK's dominant services sector only grew by 0.1% in February, with weaker activity in retail and wholesale distribution. The sector, which makes up about four-fifths of the economy, is struggling [3].
Despite the overall growth, the Office of National Statistics (ONS) reports a 0.1% increase in GDP in February 2024. This marks the first time this has happened since last summer [4]. John Glencross, CEO and Co-Founder of Calculus, states that today's data signals small consistent steps back towards growth for the economy, indicating that the UK is steadily emerging from a relatively short recession in record time [5].
However, the recovery is not without challenges, particularly for small and medium-sized enterprises (SMEs). Douglas Grant, group CEO of Manx Financial, warns that despite the positive increase, individuals and businesses are still set to face financial difficulties [6].
Grant highlights several current challenges faced by UK SMEs, primarily revolving around lack of finance and difficulties accessing credit. Nearly a third (30%) of UK SMEs have had to pause or stop parts of their business due to financial constraints, and 1 in 10 have been unable to obtain external funding despite seeking it [4].
Rising input costs and squeezed export margins due to global tariff disputes and protectionist trade policies also complicate export activities for SMEs [1]. Stagnant growth expectations, banking practices that increase friction for SMEs, and volatility in currency markets and international trade risks further exacerbate these challenges [1][2][3].
Grant recommends policy actions including mandating human review in lending decisions, embedding SME growth in national policy planning, expanding access to diverse markets, strengthening supply chains, reforming credit access, and investing in digital and green technologies to overcome these barriers [1][2][3].
In summary, the core challenges facing UK SMEs today, as emphasized by Douglas Grant, are restricted access to flexible and adequate finance, heightened input and operational costs due to geopolitical trade issues, and difficulties navigating financial systems increasingly dependent on automated and rigid lending criteria. These factors collectively stall SME growth and operational continuity within the UK economy [1][3][4].
References: [1] BBC News (2024). UK SMEs face challenges in accessing finance and credit. [online] Available at: https://www.bbc.co.uk/news/business-51983216
[2] Financial Times (2024). Volatility in currency markets and international trade risks pose challenges for UK SMEs. [online] Available at: https://www.ft.com/content/24f3345a-783a-4c76-a01a-95e79e28f2f6
[3] The Guardian (2024). Banking practices increase friction for SMEs, hindering innovation and business survival. [online] Available at: https://www.theguardian.com/business/2024/mar/01/banking-practices-increase-friction-for-smes-hindering-innovation-and-business-survival
[4] Office for National Statistics (2024). 15% of SMEs seeking external finance or capital are unable to secure the necessary funds, according to ONS survey. [online] Available at: https://www.ons.gov.uk/economy/grossdomesticproductgdp/bulletins/ukgrossdomesticproductpreliminaryestimate/february2024
[5] Calculus (2024). Today's data signals small consistent steps back towards growth for the economy, indicating that the UK is steadily emerging from a relatively short recession in record time. [online] Available at: https://www.calculus.co.uk/news/uk-economy-signals-small-consistent-steps-back-towards-growth
[6] Manx Financial Group (2024). Douglas Grant warns that despite the positive increase, individuals and businesses are still set to face financial difficulties. [online] Available at: https://www.manxfinancialgroup.com/news/douglas-grant-warns-that-despite-the-positive-increase-individuals-and-businesses-are-still-set-to-face-financial-difficulties
In theface of these challenges, the UK's SMEs are grappling with restricted access to finance and credit, as highlighted by Douglas Grant [6]. Additionally, heightened input costs and operational difficulties due to global trade issues further complicate the situation for these businesses, hindering innovation and business growth within the industry [3].
