Activity at small and medium-sized businesses fell “marginally” in September, while new work and employment numbers continued to grow, the NatWest SME Growth Tracker has revealed.
The NatWest UK SME Business Activity Index – which aims to effectively measure MoM changes in the output of SMEs – scored 49.3 in September, which is now down significantly from 50.3 in August.
The reading was notably the lowest since the month of October 2023 and signaled a “marginal” decline in the overall SME output levels.
This contrasted with fairly solid growth across the United Kingdom’s private sector as a whole in September (index at 53.0).
A reading of over 50.0 indicates growth, while a reading “under 50.0 suggests contraction.”
Business activity differed widely by sector in September of 2024, with the drop in overall SME output largely driven by the “service economy.”
Construction SMEs bucked the trend, with output growth “accelerating to its fastest rate since January.”
These firms saw the strongest rise in new business in two-and-a-half years, in part due to a post-election “rebound in clients’ willingness to spend.”
Despite the slight fall in business activity, there were positive signs from the survey’s forward-looking indicators as new order volumes “expanded marginally and output growth expectations for the next 12 month were relatively upbeat.”
Job creation remained a bright spot and was maintained for the “ninth consecutive month.”
And while strong margin pressures persisted in September, overall input price inflation was “slightly lower than seen in the first half of the year.”
While the overall degree of business confidence slipped to a 10-month low, SMEs remained “upbeat about their growth prospects for the year ahead.”
Optimism was attributed to hopes of a sustained improvement in UK economic conditions, alongside “a tailwind to business and consumer spending from lower borrowing costs.”
Sebastian Burnside, NatWest’s Chief Economist said business activity among SMEs has “cooled in line with the change of season.”
However, this slight dip in activity shouldn’t hide what are “strong signs of underlying good health.”
Businesses have maintained a strong streak in “new orders for 10 months running and employment has been a strong point for SMEs all year.”
And while many businesses report their margins remain tight, inflationary pressures have softened since the start of the year.”
James Holian, Head of Business Banking at NatWest, said that above all September’s survey shows how variable the experience of SMEs is “depending on which sector they operate in.”
James added that construction firms have just recorded their strongest rise in new work for two-and-a-half years, while services companies “have recorded their fastest fall in activity in a year.”
The NatWest SME Growth Tracker is a quarterly report, designed to “monitor business performance at UK enterprises with 1-249 employees.”
Results are compiled from responses to S&P Global UK Purchasing Managers’ Index (PMI) surveys.
The panel of around 850 small and medium-sized enterprises is “stratified by detailed sector, based on contributions to GDP.”
Survey responses are collected by S&P Global in the second half of each month and “indicate the direction of change compared to the previous month.”
A diffusion index is calculated for each survey variable.
The index is the sum of the percentage “of ‘higher’ responses and half the percentage of ‘unchanged’ responses.”
Indices vary between 0 and 100, with a reading “above 50 indicating an overall increase compared to the previous month, and below 50 an overall decrease.”
The indices are then “seasonally adjusted.”
Indices are compiled for a range of survey variables, “including business activity, new orders, employment, input costs, prices charged, suppliers’ delivery times and future activity.”
The SME Growth Tracker data for the month of September 2024 were reportedly collected between the dates of 12 – 27 September 2024.