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UK Business Confidence Surges

by Robert Lee,, London

31 May 2007

Confidence and optimism amongst UK businesses is on the up, according to the latest survey by KPMG.

After the slowdown reported in the previous survey, confidence amongst UK businesses has now surged to its highest level since 2004.

KPMG’s latest survey of UK small to medium-sized businesses (classed as having turnover of between GBP5 million and GBP500 million) shows a substantial hike in the number of businesses that are optimistic about their sector’s prospects over the coming twelve months.

When asked how they felt about the prospects for small to medium-sized companies over the next twelve months, almost two in three (64%) of those surveyed predicted a positive outlook; the highest level since 2004, and an increase of 14% on the mood of the previous survey. The outlook for their own business was even more upbeat, with 76% feeling confident about their prospects in the coming twelve months – the highest figure since the survey began back in 2003.

There are also encouraging signs that UK businesses are becoming more positive about their prospects overseas. Almost three quarters (74%) of those questioned felt that small to medium sized UK businesses were either ‘competitive’ or ‘extremely competitive’ within Europe.

Mel Egglenton, UK head of middle market for KPMG, observed that: “Our latest survey shows confidence amongst SMEs is clearly on the up, with levels of optimism as high as they have been for 3 or 4 years. It is also worth highlighting that the people who answer these questions are businessmen, not economists. Therefore, the rationale for their answer is based not on some detailed analysis of macro-economic trends but the health of their order book. So, to see these businesses in confident mood and with healthy order books surely bodes well for the future.”

Egglenton suggested that rising energy costs have forced firms to look hard at ways to improve their efficiency, leaving their businesses in a more robust state than they would have been otherwise. "So it appears that those who felt the pinch over the last year or two have now steadied the ship and are looking forward to the next 12 months with a renewed sense of optimism," she observed.

This quarter, the survey also found a groundswell of optimism about the UK economy, with 58% of those questioned believing that the economy was on an upward curve.

One part of the survey that did highlight a growing concern among many businesses was the questions on interest rates. When asked what should happen to interest rates, 66% felt they should be held at present levels. Egglenton concluded: “Much has been written in recent months about what the Bank of England should do to the UK’s interest rate, and our findings show that two thirds of businesses would like to see interest rates held at their present levels. However, there is an obvious concern among those questioned that interest rates are going to continue to increase; 41% see this as being a major issue in the future. It’ll be interesting to watch what effect any increase will have on the levels of confidence seen in this report.”

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