Cost and commodity prices have been very low for quite some time and the exchange rate will now mean they are likely to rise quite sharply over the coming months.
This will have an impact on costs for all kinds of businesses, from manufacturing to retail. But given the ongoing uncertainty following the EU referendum what other indicators might be helpful to SMEs to monitor what is happening to the economic cycle and to economic activity?
Businesses will need to be patient
Economic activity among consumers and clients is the easiest and most immediate clue. In the retail sector are the end of season sales starting earlier than usual? Monthly figures for house sale activity and prices and for mortgage approval levels can also be a helpful guide to how confident consumers may be feeling. These are published monthly in arrears but it may be better to look at quarterly or even annual trends to get a clearer picture.
For business activity the monthly Markit PMI (Purchase Managers’ Index) is useful for measuring confidence and activity levels in both manufacturing and service industries. The most recent one published last week and the first post-Referendum made grim reading with a headline that the UK economy had been shrinking at the fastest rate since 2009, immediately after the 2008 crash.
It found that manufacturing had dropped to its lowest level since February 2013 and that confidence levels in both sectors had fallen from 52.4 in June to 47.7. Any figure below 50 means a contraction in activity.
Another perspective comes from the quarterly economic survey of business confidence from the British Chambers of Commerce (BCC). Its most recent one, published in early July and covering April to June showed that there had been improvements in both manufacturing and service sector confidence and sales during the second quarter of the year for most regions in the country with only slight reductions in confidence looking ahead to the next quarter.
However, for those companies that may be struggling but have delayed making decisions on restructuring and on investment until after the referendum a key question will be what happens next to interest rates. Restructuring company Begbies Traynor has reported that company insolvencies were stabilising with fewer than 4,000 going into insolvency in the first three months of 2016, a rise of 5.4% on the previous three months but remaining lower than the same period in 2015.
The insolvency statistics are also reported quarterly in arrears so again it is likely to be a while before a clearer picture emerges.
What will happen to the economy will also depend on what actions the Bank of England and the new Chancellor, Philip Hammond, take in the next few months to stimulate the economy and how successful any measures they introduce are, bearing in mind that here too there is always a time lag.
Basically, therefore, the advice to SMEs is to keep calm and carry on while keeping an eye on the developments we have suggested above.
(Image courtesy of Vlado at FreeDigitalPhotos.net)