Foreword by South East FSB Regional Chair Ian Ross
The first quarter of 2024 showed little improvement from the lows of 2023. From a slump of -27 at the end of 2023, business confidence in the South East stands at -7. By comparison, in Q1 of 2023, business confidence was in positive territory at 4. We remain below the national average, which is in positive territory at 5, and the lowest amongst the 8 English regions.
Worryingly, over four in ten small businesses (42%) reported a decrease in revenue in the first quarter of 2024. Looking ahead, SMEs in the South East forecast an increase in revenue of 18% over the next 3 months, but this is itself a concerning figure. It is below the UK average of 22%, and these figures are usually the high-water mark. Our surveys show this figure declines as the year progresses.
Employment has fallen across the South East, but only marginally. 12% of firms reported a reduction in staff, with 11% reporting an increase. This is better than the national average of -4%. SMEs forecast no drastic changes in this picture, 10% expect to increase staff numbers and 8% anticipate a decrease. The majority of businesses have reported, and expect, stability in their workforce. Yet wage growth is slowing. 57% more SMEs reported an increase in staff wages than those that decreased the average pay. This is a fall from Q3 2023, where the net score was 61%.
Looking forward, 72% of firms expect to increase average wages. Compared to last year, where 77% expected to pay more, this is a more pessimistic outlook from small businesses. This is matched in growth expectations. Under half (47%) of firms expect to grow, with 10% expecting to downsize. This net score of 37% is significantly down on the net score of 48% this time last year.
Ian Ross, FSB Chair for the South East, said: ‘These figures show the economy in the South East slowing down. Whilst the mood in the rest of the country is on the up, these statistics show economic growth stalling in the South East. Our respondents reported the domestic economy, consumer demand, labour costs, the tax burden, and finding skilled staff, as the greatest challenges to their development.’
FSB South East Quarterly Small Business Index – Q1 2024
The South East Small Business Index (SESBI), which measures confidence amongst businesses, has increased since the last quarter. It currently stands at -7, whilst in Q4 2023, the reading was -27.
Although this change is an improvement since the previous quarter, it remains below the score for the same time last year, which was 4, in Q1 2023.
This confidence score for the South East is below the UK average, which stands at 5. This quarterly improvement for the South East is consistent with the change for the whole of the UK, which improved from -15 in Q4 2023 to 5 this quarter.
On the other hand, whilst the South East SBI score has declined YOY, the UK has seen improvement, from -3 in Q1 2023, to 5 in Q1 2024. The current SBI score for the South East is the lowest of the 8 English regions that are reported on, and is well below the most confident region (Yorkshire and the Humber & North East, with a score of 31). The South East is one of only 2 English regions with a score below zero, along with London (-2).
The South East Small Business Index is a weighted index of the responses to the question: ‘Considering your overall business performance, and ignoring any normal seasonal variations at this time of the year, how do you view business prospects over the next three months, compared with the previous three months?’ The share of firms reporting ‘much improved’ are given the following weightings: +2, slightly improved +1, approximately the same 0, slightly worse -1 and much worse -2; the Small Business Index is derived from the sum of these factors.
Confidence in business performance over the next 3 months for the South East has increased along with the UK average, but remains below that average.
Whilst the quarterly change in confidence among small businesses in the South East is now positive, YOY confidence has decreased, and is now below zero for the first time since Q1 2023.
Business Conditions -
The net revenue balance in the South East continues to remain below zero this quarter and is below the net revenue balance seen this time last year, but has improved slightly from -14% to -12% since Q4 2023.
42% of small businesses in the South East have reported a decrease in revenue over the last 3 months. This is down when compared to Q4 2023, where 45% reported a decline in revenue across the same time period.
The net balance of small businesses in the South East reporting revenue increases vs. those reporting a fall in quarterly revenue is at -12% this quarter. This is below the current UK net average of -9%, which has itself fallen slightly from the -6% reported last quarter. Despite being below the UK average, the South East has performed better than London, the West Midlands, and the East of England.
The outlook for the future has improved from Q4 2023 to Q1 2024, to a net predicted revenue of 18% over the next 3 months, compared to -5% in Q4 2023. Whilst this is a considerable improvement, this represents a slight YOY net predicted revenue decrease, from 22% in Q1 2023. This higher net score at the beginning of the year is consistent with the predictions of previous years since the start of the pandemic; a trend of high initial net predicted revenue that then declines as the year progresses. The current net predicted revenue in the South East is slightly below the UK average of 22%.
The NET revenue score is calculated by subtracting the total number of businesses who reported a decrease in revenue from those who reported an increase in revenue in the last 3 months.‘How has the revenue of your business changed over the last 3 months’.
The net revenue for small businesses in the South East has improved slightly since Q4 2023, but is below the net revenue for this time last year.
Employment and Wage growth
Small businesses in the South East predicted a very small net change in headcount last quarter – this is consistent with the actual net change that has been reported by small businesses in the region over the last 3 months. Over the next 3 months, they predict that there will be a minor net increase in employment numbers.
In the South East over the last quarter, there has been a slight net reduction in employee numbers, with 11% of businesses increasing their staff numbers since Q4 2023, compared to 12% decreasing them. This net change of -1% is just below the prediction from Q4 2023, of net 1%. This net employment change is slightly better than the UK average, which is -4%.
Over the next quarter, small businesses in the South East predict a small net increase in employment numbers of 2%; this is made up of 10% believing their headcount will increase over the next quarter, and 8% saying this will decrease.
Wage Growth
In the South East, 66% of small businesses increased the average salary for their employees compared with 12 months ago, with 63% doing so by 2% or more. 9% of small businesses in the region report a decrease in the average salary over this time, resulting in a net score of 57%; a slight decline compared to the 61% reported in Q4 2023.
Over the next 12 months, 72% of small businesses in the region expect their average wage to increase, with 63% expecting the increase to be 2% or more. Comparing this to Q1 2023, 77% predicted an increase in the average salary, and 68% predicted this would be by 2% or more.
Employment numbers for small businesses in the South East have remained relatively stable over the last 3 months; fewer are reducing their headcount, whilst slightly more are increasing headcount when compared to Q4 2023.
Growth and Investment aspirations
In Q1 2024, 47% of small businesses in the South East said that their aspirations in the next 12 months are to grow either rapidly (increase turnover/sales by over 20%) or moderately (up to 20%). 10% report that they will be likely to contract their business over the next 12 months (downsize, close or sell), resulting in a net score of 37%. When compared to 12 months ago, small businesses in the region are more pessimistic (net 48% in Q1 2023).
The investment intentions for small businesses in the South East over the next quarter are similar to the nationwide average. The net balance of firms that expect to increase their investment is 8%, compared to the UK average of 10%. Over the next quarter, 24% of small businesses in the South East anticipate increasing investment, whilst 16% expect this to decrease, resulting in this net score of 8%. This is a YOY decline for the region when compared to the net investment intention of 15% in Q1 2023.
In the South East, the domestic economy (70%), consumer demand (33%), labour costs (26%), tax burden (24%) and appropriately skilled staff (23%) are the greatest perceived barriers to growth over the coming twelve months. Since the previous quarter, the proportion that perceive utility costs to be a barrier to growth has decreased, from 24% to 17%.