By Daniel Hunter

Business confidence that the economic climate will improve this financial quarter has almost doubled to 38% this quarter from 20% last quarter. At the same time, perceptions of market risk among Britain’s small to medium-sized enterprises (SMEs) have fallen significantly, according to the latest SME Risk Index survey from global insurer, Zurich.

The Zurich SME Risk Index, which measures the perceived level of business risk faced by SMEs, has fallen to 43.41 points* from a high of 44.55 in the first quarter of the year. Only 28% of SME decision makers think that their business faces more risk now than in the last financial quarter, compared to 35% who said the same in Q1. In addition, 23% see less risk today compared to last year, a jump from 10% only six months ago.

At the same time, the research, where more than 500 decision-makers from British SMEs were polled by YouGov, found that nearly two-fifths (38%) of respondents feel confident that the economic situation will improve in this financial quarter, compared to only one-fifth (20%) last quarter.

Perceptions of business and market risk serve as a strong long-term indicator of future business confidence, investment and workforce expansion, in addition to overall opportunistic risk-taking amongst the country’s small and medium-sized businesses.

Concerns about risk have fallen in the following areas (last financial quarter vs. this financial quarter):

- the current economic climate (down from 72.18 points to 66.47)
- the state of lending and business finances (down from 46.28 points to 43.15)
- supply chain exposures (down from 39.95 points to 37.80)
- the current market dynamics (down from 52.38 points to 49.09)

A possible result is that more SME decision makers say that their business has been able to invest. In the last financial quarter, 28% of businesses invested in assets and operations, compared to only 19% at the beginning of the year. Business growth has also risen, with 38% reporting growth in the last quarter, compared to only one-third (31%) who said the same at the beginning of the year. Only 12% say they are at high risk of going out of business in the next 12 months, a drop from 16% over the last six months.

Yet while the situation is looking up, some anxiety about certain businesses risks remains. Concerns over workforce challenges, such as availability of talent and workforce capacity, have increased, from 37.89 to 41.86 points.

As the demand for skilled employees increases alongside the return to economic growth, it is perhaps alarming to see that, when asked to tick their top three biggest workforce risks, 35% of respondents are concerned about depending on key people within the business. Concern over the availability of skilled workforce and talent retention has also risen to 26% from 18% in October last year, rising every quarter since this date.

Richard Coleman, Director of SME at Zurich Insurance, said: “With many official figures suggesting a return to economic growth in the whole UK economy, it is encouraging to see a shared optimism among Britain’s small and medium-sized businesses. SMEs are building in confidence and reinvesting in their business, suggesting a belief that these economic green shoots are here to stay, for the moment at least.

“A key part of being a successful small business owner is the ability to take measured risks, and this is what many SME owners are regaining the courage to do.

“Of particular note is that workforce capacity and talent availability challenges are now becoming front of mind for many SMEs. Whilst this remains a growing area of long-term risk for small businesses, this bodes well for long-term improvement in UK unemployment and job creation.

“As the economy improves and competition increases, businesses need to maintain a strong focus on retaining the best talent, or risk losing them to forward-thinking competitors.”

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