NatWest SME PMI® Tracker Shows UK SMEs Optimistic Amidst Recovery and Sustainable Investment Plans

NatWest SME PMI® Tracker Shows UK SMEs Optimistic Amidst Recovery and Sustainable Investment Plans

(IN BRIEF) The latest NatWest SME PMI® Tracker reveals a robust expansion in business activity among UK SMEs during the first quarter of the year, with a Business Activity Index of 52.6 in March, indicating growth. This growth is largely fueled by improvements in order books, particularly in the service sector, which recorded a Business Activity Index of 53.2, followed by manufacturing at 51.4. Despite challenges such as rising average cost burdens, including salary payments and transportation costs, SMEs remain optimistic about future activity, with confidence holding close to a two-year high. Notably, the survey also highlights increasing investment plans in renewable energy and electric vehicle infrastructure among UK SMEs, reflecting a commitment to sustainability and innovation in business practices. NatWest Group Chief Economist Sebastian Burnside emphasizes the resilience of businesses amidst market challenges, while James Holian, Head of Business Banking at NatWest Group, underscores the importance of sustainable investments for long-term growth and environmental benefits.

(PRESS RELEASE) LONDON, 20-Apr-2024 — /EuropaWire/ — Business activity among UK SMEs has expanded at a solid rate throughout the first quarter of the year with the NatWest SME PMI Business Activity Index recording 52.6 in March.

NatWest’s index is a key indicator of the health of the UK SME economy. A PMI reading over 50.0 indicates growth or expansion, while a reading under 50.0 suggests contraction.

The recovery in overall SME output levels was driven by improving order books, with new work increasing for the fourth month running in March. Leading the way, the services sector recorded the fastest upturn in business activity in March, recording 53.2, followed by the manufacturing sector, which recorded 51.4. SME construction output meanwhile near-stabilised in March at 49.6, which also represented an improved trend after stronger declines in activity in the second half of last year.

In the latest survey, SMEs reported another sharp rise in their average cost burdens, especially those in the service economy, largely due to rising salary payments and transportation costs. However, the overall rate of input price inflation was the slowest since November 2023. Efforts to alleviate margin pressures nonetheless led to the fastest rise in prices charged by SMEs since June 2023.

Business activity expectations remained upbeat in March, with SMEs confidence holding close to February’s two-year high.

Renewable energy investment plans

The NatWest Sustainable Business Tracker found that there was a rise in the proportion of SMEs that have already invested in renewable energy investment plans compared to the same period in 2023.

UK SMEs were most likely to report plans to invest in more energy efficient business processes over the coming 12 months. Currently, 11% of small and medium-sized enterprises have already invested, a slight uptick from the 8% recorded during the same period last year. Additionally, 18% of SMEs expect to invest within the next 12 months and the longer-term outlook is much more upbeat with 41% intending to invest within five years.

The survey also found that over half of UK SMEs plan to spend on EV infrastructure or have already done so. Of all six categories monitored by the survey, the use of electric vehicles (or installation of their charging points) recorded the largest proportion of SMEs that have previously invested (18%), with an additional 29% expecting to invest within the coming five years.

Sebastian Burnside, NatWest Group Chief Economist, said:

“Businesses have shown great resilience in the face of challenging market conditions as rocketing inflation and then rising interest rates made their mark. So, it’s good to see that firms are now reporting much more muted inflationary pressures at the same time as five months of growth in a row.  When it comes to job creation, the picture is more varied. Higher levels of SME employment largely reflects greater recruitment in the service economy, while hiring trends were much more subdued in manufacturing and construction. But optimism about future activity is widely shared with both services and manufacturing registering scores of above 70.”

James Holian, Head of Business Banking at NatWest Group, said:

“It’s really encouraging to see small businesses have had a strong start to the year and remain optimistic about their future growth. The recovery in output has been driven by improving order books, with new work increasing for the fourth month running in March. This suggests that falling inflation and hopes of lower interest rates is leading to an upturn in economic conditions, which is likely to support growth in the year ahead.”

“These findings show that over half of UK SMEs plan to spend on electric vehicle infrastructure or have already done so. As well as the environmental benefits, many businesses stand to benefit financially in the long term by transitioning their fleets. In partnership with Diode, we are supporting our customers to access a tailored EV readiness assessment that breaks down the costs and potential return on investment of electric vehicles, so business owners can make the right decision for their individual circumstances.”

Notes for editors

The NatWest Sustainable Business Tracker is a quarterly report, designed to monitor business performance and sustainability actions at UK enterprises with 1-249 employees. Results are compiled from responses to S&P Global UK Purchasing Managers’ Index® (PMI®) surveys. The latest report includes a special feature on renewable energy investment plans across six categories.

Notes to editors

About the NatWest Sustainable Business Tracker

The NatWest Sustainable Business Tracker is a quarterly report, designed to monitor business performance and sustainability actions at UK enterprises with 1-249 employees. Results are compiled from responses to S&P Global UK Purchasing Managers’ Index® (PMI®) surveys. We track sustainability actions among small and medium-sized enterprises (SMEs) across five main categories. The latest report includes a special feature on renewable energy investment plans for the year-ahead.

The panel of around 850 small and medium sized enterprises is stratified by detailed sector, based on contributions to GDP.

Survey responses are collected by S&P Global in the second half of each month and indicate the direction of change compared to the previous month. A diffusion index is calculated for each survey variable. The index is the sum of the percentage of ‘higher’ responses and half the percentage of ‘unchanged’ responses.

The SME PMI® indices vary between 0 and 100, with a reading above 50 indicating an overall increase compared to the previous month, and below 50 an overall decrease. The indices are then seasonally adjusted. Indices are compiled for a range of survey variables, including business activity, new orders, employment, input costs, prices charged, suppliers’ delivery times and future activity.

The SME PMI® data for March were collected 12 – 27 March 2024. Historical data are available from January 1998 for the All-Sector SME Business Activity Index. Manufacturing data are available from January 1992, Services data from July 1996 and Construction data from April 1997.

SME Sustainability PMI® data are compiled on a quarterly basis. The SME PMI® data are compiled on a monthly basis. The latest SME Sustainability PMI data were collected in March 2024. In each survey, companies are asked what sustainability plans they are looking to prioritise over the next year, and the results are compared against those seen for large companies.

For further information on the PMI survey methodology, please contact economics@spglobal.com.

About NatWest Group

NatWest Group is a relationship bank for a digital world. We champion potential; breaking down barriers and building financial confidence so the 19 million people, families and businesses we serve in communities throughout the UK and Ireland can rebuild and thrive. If our customers succeed, so will we.

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S&P Global (NYSE: SPGI) S&P Global provides essential intelligence. We enable governments, businesses and individuals with the right data, expertise and connected technology so that they can make decisions with conviction. From helping our customers assess new investments to guiding them through ESG and energy transition across supply chains, we unlock new opportunities, solve challenges and accelerate progress for the world.

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SOURCE: NatWest