By Lea Pachta

Small business turnover reached a 29-month high in March 2010, according to the latest Business Factors Index from Bibby Financial Services.

Despite a challenging start to the year, the Index for the first quarter of 2010 ended on a high of 108.1 — a level not seen since October 2007.

However, despite positive GDP figures, talk of recovery and other signs of green shoots, almost two thirds (62 per cent) of businesses surveyed do not anticipate real economic improvement for at least a year.

A change in Government (25 per cent) and the loosening of lending criteria (25 per cent) are cited as the two biggest factors that businesses think could stimulate a faster recovery, states the report.

The Index analysed quarterly movements in small business turnover together with qualitative opinion from small business owners. It also reveals:

· A quarter (27 per cent) of business owners feel hopeful for the future, with an additional 10 per cent doing well, having actually benefitted from the recession.

· Almost a third feel the UK economy will have fully recovered by the end of 2010.

· However, while sentiment from almost half (47 per cent) of business owners implies that conditions are beginning to stabilise, a quarter (26 per cent) feel trading conditions have worsened.

The Index findings are supported by views from the CBI and the British Chamber of Commerce, both of which have forecasted growth of just one per cent by the end of 2010, indicating that, while things may have taken a turn for the better, the economy is likely to remain sluggish throughout the course of the year.

Edward Rimmer, UK chief executive at Bibby Financial Services commented: “January’s torrid weather conditions had a negative impact on the output of many UK businesses, and this slowed recovery in the proceeding months. While the latest Index reading matches levels not seen for more than two years, it actually only gained an average of 0.5 points over the first quarter of this year.

“That said, March’s rise has bought about a sense of renewed optimism and it is encouraging to see so many firms feeling upbeat about an improvement in trading conditions over the course of 2010.”

Does sentiment vary across the regions?

Businesses in the West Midlands (16 per cent), Wales (14 per cent) and the North West (12 per cent) are the most positive about the prospects of imminent recovery, with these businesses expecting signs of economic recovery by the time of the General Election — no other region throughout the UK displayed this level of optimism. Worst hit regions include East Anglia, where 70 per cent of small business owners feel it could be at least a year before the economy fully recovers.

Firms in the North appear to have experienced the greatest rate of turnaround over the past year, with the majority (52 per cent) claiming that trading conditions are better than they were 12 months ago. This is the highest reading in the UK, and shows a dramatic increase on the six per cent recorded in the previous Index.

Which sectors are experiencing positive growth?

· The construction industry — one of the hardest hit by the recession — experienced significant growth in March, with the index reaching 128.1 points, the highest reading since the start of the Index in July 2007. However, while almost half (48 per cent) have seen an improvement in trading conditions over the last six months, two thirds (68 per cent) have had to cut costs.

· Similarly, the manufacturing sector — often seen as the country’s barometer industry — also reached its peak reading to date in March at 122.5 points. This compares to a figure of 81.8 for the corresponding period in 2009, showing a significant increase in output over the year.

Edward Rimmer concluded:

“Looking forward, the Index does highlight a general feeling towards a tentative recovery, irrespective of whether or not trading conditions have improved. Even more revealing are the factors which businesses believe will help the recovery come sooner.

“The fact that loosening of lending criteria has again been cited as a key issue indicates that mainstream lenders are still not providing the support needed by UK businesses as they look to move out of the recession, an issue which has plagued small and medium-sized businesses throughout the downturn.

“It is important to ensure businesses are prepared for growth and have access to funding where needed. As an industry, we should be doing our utmost to support small and medium-sized businesses, and Bibby Financial Services will ensure our insights into recovery are utilised in supporting business recovery throughout the course of the year.”

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