Medium-sized UK businesses more optimistic than smaller firms - report

Accountancy and advisory firm Azets has revealed that medium-sized businesses are more optimistic about the future than smaller firms.

The Azets Barometer survey, which features 353 responses from businesses across the UK in April 2024, has found that business leaders are cautiously optimistic about their expectations for the next year with respondents rating their economic prospects at 5.5 out of 10.

UK businesses are among the least optimistic of the six Northern European countries surveyed, with Denmark (6.8) and Ireland (6.1) most optimistic.

The Barometer highlights a clear correlation between business size and financial confidence, with smaller firms in the UK in a slightly weaker financial position relative to their peers.

Small businesses employing 10-49 people scored 6.1 out of 10, while medium-sized businesses which employ 50-249 people scored 6.8.

Large companies expressed the highest levels of optimism about their own financial performance, scoring 7.3 out of 10.

According to the survey, economic and geopolitical uncertainty rank as the challenges at the forefront of businesses’ minds, at 5.8 and 5.4 out of 10 respectively. This was followed by talent recruitment and retention and regulatory compliance (both 4.9).

UK businesses show moderate confidence in talent attraction (5.6 out of 10) and retention (6.2). There is a notable difference in firm’s confidence levels between the two, with 58 per cent of respondents expressing higher confidence in their ability to retain top talent, while only 48 per cent indicate the same level of confidence in attracting new talent.

Asked about the main challenges relating to talent, competition from other employers ranked highest (41 per cent), followed by a skills shortage in the labour market (39 per cent), work-life balance considerations (36 per cent) and compensation and benefits (34 per cent).

Looking ahead, the UK’s business community expects turnover, profit and headcount to increase in the next 12 months, with scores ranging from 5.8 to 6.3 out of 10.

Respondents to the survey also expect an increase in digitalisation, cybersecurity, and sustainability. Firms are more cautious about international trade at 5.4 out of 10, and expect a slight decrease in borrowing to fuel growth in the next 12 months, scoring 4.8.

In terms of investment intentions, the Barometer revealed that 84 per cent of UK businesses are planning to invest in cybersecurity measures, with other priorities including digitalisation (75 per cent), employee retention (73 per cent), and recruitment (69 per cent).

Employee retention will receive the largest investment, with almost one-fifth of businesses (19 per cent) planning to invest at least £50,000 and 4 per cent committing to invest more than £250,000.

Richard Goddard (pictured), regional managing director at Azets said: “It’s clear from this latest Azets Barometer survey that UK businesses are mainly optimistic about the future and mildly confident about the UK’s economic prospects.

“It’s sensible that businesses remain cautious and take a pragmatic approach to investments in the next 12 months, with a General Election in July creating even more uncertainty, against a backdrop of long-term economic instability.

“UK businesses are clearly prioritising investments in cyber security and people, placing a strong emphasis on fortifying their digital defences and maintaining a skilled workforce, while taking a more cautious approach towards exploring new products, industries, or markets.

“Despite more positive signs of a return to growth in the UK, it’s clear that smaller firms continue to struggle as the cost of business remains high, leading to larger, more confident organisations cutting costs and families reducing discretionary spend.

“It’s likely that the squeeze on smaller firms will continue for some time, which is demonstrated by businesses ranking geopolitical and economic uncertainty at the two biggest challenges over the next 12 months.

“Growing businesses are at the beating heart of the UK economy, and many have the potential to scale-up their success.

“By taking the significant obstacles facing smaller firms and incentivising the growth of medium sized firms, we can unleash the true potential of UK businesses.”

Click here to learn more about the Azets Barometer and view the interactive dashboard.