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UK SMEs to bolster employee numbers following promising start to 2022

Staff in store are the link between customers and technology

Two in five small and medium-sized businesses in the UK plan to hire, on average, six new employees before the end of March, following a promising start to the year, according to the latest quarterly Barclaycard Payments SME Barometer.

The news comes as 56.2% of SMEs report a rise in earnings in the last quarter of 2021 against the same period in 2020. Data from Barclaycard Payments, which processes £1 in every £3 spent in the UK and services over 350,000 SMEs, supports this trend – with transaction volumes up 42.3% for in the last three months of 2021, compared to the same period in 2020**.

2022 has started positively for many SMEs despite concerns around economic uncertainties, with almost three fifths (58.1%) predicting an increase in revenue this quarter compared to the same period last year when the UK was in the third COVID-19 lockdown.

On average, businesses forecast a year-on-year increase in Q1 turnover by 13.5%. Perhaps unsurprisingly, hospitality and leisure operators – whose physical premises were closed this time last year – expect the largest turnover increase (33.6%), followed by retail (16.5%), transport and distribution (14.6%) and financial services firms (11.2%). This is likely due to the impact of coronavirus settling and SMEs feeling more confident to invest or seek investment – evidenced by 32.7% of UK SMEs who plan a ‘high level’ of investment in their business over the next 12 months.

Year-on-year payments volumes also demonstrate a feeling of confidence amongst SMEs across the UK, with leisure and entertainment, food and drink and retail SMEs seeing an increase by 471.0%, 110.8% and 54.1% respectively***.

Overall, there is a quiet confidence among small and medium-sized company leaders, that they are on track to have a positive finish the financial year, despite a broader atmosphere of uncertainty among rising inflation, the cost of living on consumers and the lingering impact of the Omicron variant.

The research, which polled 577 senior staff working in UK SMEs, found that overall business optimism is beginning to build, scoring 55 out of a possible 100, up from a low of just 40 points in Q2 2020. This quarter equals the highest levels recorded (with Q1 2020, Q2 2021 and Q3 2021 recording 55 each), since the Barclaycard Payments SME Barometer started in February 2020, before the first lockdown****.

Yet, while almost half (48.7%) are optimistic about the outlook for their firms, confidence in the broader economy is less pronounced, with those reporting a neutral sentiment (39.6%) outweighing those who are optimistic (23.8%).

Just under two thirds of SMEs (64.6%) are worried about a rise in the cost of living and inflation and a similar proportion (66.6%) highlight a feeling of nervousness about increases in their energy bills, with four in ten (39.4%) stating that it will impact their ability to remain competitive, while 9.5% will reconsider the need for a physical retail outlet as a result.

When asked to select the number one challenge for this year, SME leaders now view the rising cost of living as a bigger headwind than the ongoing uncertainty around the pandemic. Over a tenth (10.6%) of the respondents to the Barclaycard Payments study selected a rise in inflation as the issue causing them the greatest concern, this was followed by the stability of the domestic economy (10.2%) and the difficulties associated with COVID-19 (6.6%). In contrast, SME leaders ranked the pandemic (22.0%) as the biggest challenge of 2021, followed by the domestic economy (8.2%) and the cost of materials (7.8%).

As a result of the challenging economic backdrop, SMEs have a mixed view on how this will impact consumer spending throughout the year. While four in 10 (41.7%) SMEs expect it to fall, a further 29.2% believe that, although shoppers will spend cautiously, they are likely to spend more on loved ones to help lift their spirits.

Colin O’Flaherty, Head of Small Business at Barclaycard Payments, comments: “Small and medium-sized businesses have had a positive start to the year and it’s encouraging to see so many seeking to add to their workforce. SMEs are also remaining resilient by continuing to focus on areas within their control, such as by improving their operating models to overcome the hangover to supply chain disruption which peaked at the end of last year.

“The coming months will no doubt present continued challenges for British SMEs and the impact of rising costs will remain front of mind. Businesses will need to call on the same spirit for innovation and specialised support that has propelled them through the last two years.”

Jo Fairley, Co-Founder of Green & Blacks and SME Investor adds: “The strong start to the year for British small and medium-sized businesses, who are looking forward to an average anticipated uplift of 13.5% in earnings over Q1, is really great news. But it comes at a time where two thirds of SMEs are also acutely aware of the challenges posed by the rising cost of living, inflation and energy bills – potentially a perfect storm.

“From my own experience running multiple ventures, I know all too well that trying to weather economic turbulence while growing a business can be daunting on top of the day-to-day fire-fighting. Nevertheless, the last couple of years have shown that the British consumer is keener than ever before to support smaller and local businesses, and this should prove really positive for SMEs, helping them not just to cope but go grow in the months ahead.”

Earlier this month, Barclays launched a package of support aimed at boosting small businesses, with the bank set to host 50 masterclasses a month this year, which will focus on managing cash flow, business growth and support for wellbeing. The classes are open to all small business owners, with national events focused on the hospitality and care home sectors.

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