The lifeblood of the British economy – its small and medium sized businesses – is facing a triple whammy of threats, according to the UK’s largest challenger bank.

They are facing a triple whammy of challenges, namely:

They are facing a triple whammy of challenges, namely:

Britain’s SMEs have recorded the worst business health reading since 2014, as a shortage of skilled workers, rising costs and a lack of borrowing take their toll, according to the latest research by CYBG in partnership with the Centre for Business and Economics Research (Cebr) and YouGov.

CYBG’s quarterly SME Health Check Index dropped to a score of 42.0[1], down 48% since 2014 and the fifth consecutive quarterly fall[2], suggesting a worsening business and macroeconomic environment since the EU Referendum in June 2016 and the ongoing Brexit negotiations.

Representing 5.7 million enterprises or 99.9% of total businesses in the private sector with a combined turnover of £1.9 trillion, the UK’s SMEs are unquestionably the heartbeat of the national economy.  However, they are facing a triple whammy of challenges, namely:

Rising business costs hindering growth*: According to the Index, the costs faced by the UK’s SMEs grew at an annual rate of 2.6% in the fourth quarter of 2017, with one of the key drivers being a rise in employee costs, suggesting historically low unemployment may be beginning to push up wages.

SMEs’ borrowing confidence drops*: A key driver behind the Index fall, figures show that SMEs are borrowing less, with lending down by 3.7% to £92.5 billion in the year to the end of Q3 2017, the largest drop since the Index began in 2014. In terms of the last quarter for which data is available (Q2 to Q3 2017), bank lending to SMEs fell by £1.9 billion, or 2% year on year.

UK’s skills shortage causing annual sales loss*: The UK’s skills shortage is leading to an estimated £7.3bn annual loss in sales for SMEs, equivalent to approximately 252,000 new jobs on an average UK salary[3], and worth around £97 million in corporation tax revenues for the Treasury.

Watch our video with Nina Skero, Head of Macroeconomics at the Centre for Economics and Business Research and Graeme Sands, Head of Business Banking at CYBG discuss what this means for UK SME’s

[1] The Index includes measures that can be directly linked to SME performance, as well as components that relate to the wider economy. A score of 100 would indicate maximum improvements across the SME Health Check Index’s eight indicators (business costs, capacity, employment, GDP, lending to SMEs, net business creation, revenue and SME business confidence).

[2] The SME Health Check Index fell from 48.4 in the third quarter of 2017 to 42.0 in Q4 2017

[3] Average UK gross salary was £29,009 in 2017, according to the Annual Survey of Hours and Earnings (ASHE)