Business confidence monitor

CIMA mid-sized business confidence monitor Q1 2011 This report draws together the findings from our Q1 2011 survey of members and students working in medium-sized businesses around the UK.

1|Page

CIMA UK Mid-Sized Business Confidence Monitor, Q1 2011 Executive summary 1. Introduction CIMA’s mid-sized business confidence monitor is now in its third year. This summary reports on the Q1 2011 findings from 303 mid-sized businesses, which completed the survey between 25 February and 14 March 2011.

2. Main survey findings for quarter one 2010 Government initiatives  A quarter of respondents are confident that the current government can restore growth in 2011. However, just 5% are confident that the government’s new lending initiative and targets - Project Merlin, an agreement between the government and the UK's four biggest banks in which the banks have committed to lending more money in 2011, especially to small businesses - will genuinely improve bank lending to mid-sized business.

Confidence that the current government can restore economic growth in 2011

37% 32% 23% 2% Extremely confident

6% Confident

Neutral

Not very confident

Not at all confident

Base: 303

Confidence that the government’s new lending initiative and targets (Project Merlin) will improve bank lending to mid-sized businesses

60%

27% 1%

4%

Extremely confident

Confident

8% Neutral

Not very confident

Not at all confident

Base: 303

 One third of businesses have lost revenue as a direct result of public sector spending cuts. Furthermore, one in five (19%) expect the government spending cuts to reduce their companies FTE headcount in 2011. On average, 14 jobs will be lost in mid-sized businesses this year – averaging 7% of FTE headcount. Operational functions are likely to be hardest hit, with 84% of those who expect government spending cuts to reduce headcount, expect operations to be affected. Outside of the operations function, the headcount cut is likely to be relatively evenly spread, with 39% expecting finance to be affected, 33% IT, 30% marketing, and 28% expecting cuts in human resources.  Almost a quarter (23%) of mid-sized businesses are expecting to take advantage of the governments £1.4bn funding initiative to train apprentices. Of those expecting to take advantage of the initiative, each business is expecting to recruit, on average, three apprentices in 2011.

2|Page

Attitudes to the economy Q1 2011 delivered mixed messages around attitudes to the economy amongst mid-sized businesses.  Almost four in ten (38%) expect the UK to slip back into recession in 2011.  Despite a lack of confidence surrounding economic growth in 2011, more than three quarters (77%) of mid-sized businesses in the UK are at least as confident about the economic prospects facing their business over the next quarter, compared with last quarter. This is highlighted in the economic prospects index below, which shows confidence at its highest level since the same period a year ago. In addition 93% of mid-sized companies are confident of their business survival – the highest level reported since the survey began in Q1 2009.

Economic prospects index 35 30 25 20 15 10 5 0

29.6 24.9

22.3

20.4 18.2

14.1

12.2

Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Base: 303

Business survival confidence Confidence total

83%

83%

85%

Extremely confident

87%

91%

93% 88%

56% 42% 42%

45%

46%

48%

38%

39%

39%

Confident

48%

87%

84% 59%

51%

49%

36%

35%

43% 32%

34%

Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Base: 303

 Close to three-quarters (74%) of mid-sized businesses reported that the Bank of England’s decision to keep interest rates unchanged has had no impact on their businesses performance (17% report a positive impact and 9% a negative impact). Looking ahead, 70% believe that the Bank of England should keep interest rates unchanged in the next quarter, although 28% believe that it is time for the Bank of England to increase the rate of interest.

3|Page

What should the Bank of England do with interest rates next quarter?

2% 28% Increase

70%

Keep the same Decrease

Base: 303

 A year ago, 45% of mid-sized businesses reported that the prospect of a 20% VAT rate would negatively impact on their business. However, in Q4 2010 nine out of ten businesses were prepared for the 20% VAT increase on 1 January 2011, and just 26% of mid-sized businesses have reported a negative impact on business in Q1 2011, with the single biggest negative impact of the VAT increase associated with administrative costs (33%).  The rise in fuel duty is expected to cost the average mid-sized business an additional £92,308 in 2011. Despite this, just 11% of companies will be passing the increase on to their customers by raising prices as a direct result of the fuel duty increase.

Bank lending  The proportion of mid-sized businesses seeking additional finance from banks has remained relatively stable in the first quarter of 2011 at 18%. Of those seeking additional finance, three-quarters (76%) were successful in doing so.  For six out of ten businesses seeking additional finance, access to working capital/cash flow was a key reason, with 23% stating purchasing equipment and domestic expansion as key reasons.

3. Profile of responding companies  In total, 303 CIMA members and students working in mid-sized business with between 21 and 1,000 employees across the UK took part in the survey. A profile of respondents is summarised in the table below: % of respondents Business size by number of employees 21-49 50-249 250-500 250-500 501-1,000 Company turnover Less than £11million £11-20million £21-40million £41-100million £100million+ Sector Manufacturing and engineering ICT, technology and telecoms Construction and property Retail and consumer goods Financial services Transport, distribution and storage Not-for-profit/charity Oil, gas and alternative energy Health and education Sales, purchasing and supply chain Travel, leisure and tourism Other

22% 58% 58% 13% 7% 29% 20% 16% 17% 19% 23% 9% 8% 8% 6% 6% 4% 3% 3% 3% 3% 24%