In Q2 2021, SME CEOs were more confident in the UK economy than they had been in the last two years.
With the world reopening post-COVID, this may not be surprising. However, the picture looks a little different in Q3.
This insight comes from the Vistage CEO Confidence Index. Every quarter, over 200 CEOs share their thoughts on the economy, their talent outlook, their revenue projections, their investment plans and more.
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In Q3 2021, we have seen some of the previous quarter’s positivity continue. However, there are certain areas where CEOs still have reservations about the future.
Improving economic conditions
In Q2 2021, overall CEO confidence reached a figure of 141.4 - the highest in two years. While this has dipped slightly to 132.7 in Q3, it still remains higher than any other point since the pandemic began.
In August, the ONS announced that GDP grew by 0.4% in August. While any growth is positive, this figure remains 0.8% below its pre-COVID level. However, with the world continuing to reopen, sectors like services and production are rebounding well.
The majority of CEOs expect that their sales revenues and profitability will both improve over the next 12 months. 79% expect sales revenues to rise, while 58% state that they expect to see an increase in profitability.
While these figures are lower than Q2 (83% and 64% respectively), the figures are still overwhelmingly positive. With economic growth rising across many sectors, according to ONS data, we could see CEO confidence increase still further in the coming quarters.
In Q2, 61% of CEOs stated that their total fixed investment expenditures would increase over the coming 12 months. In Q3, that figure has risen to 64%. It is a similar story for investment in talent. 75% say that they plan to increase employee numbers in the next year, compared with 73% in Q2.
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Last quarter, we reported that businesses planned to invest more in digital transformation. In the coming months, more support will be given to businesses to push forward with technology.
The Government’s Help to Grow scheme launched in March, offering management support. In late October, details of phase two - Help to Grow: Digital - will be revealed. The scheme will offer free advice on how technology can benefit businesses, along with discounts on approved software. Companies with between five and 249 employees, who have been trading for at least 12 months and who are registered with Companies House are eligible.
The UK continues to face supply chain issues. Some areas are still experiencing supply problems at petrol stations. Meanwhile, the continued shortage of HGV drivers is causing ongoing disruption. In recent news, cargo ships are even diverting away from the UK’s largest port.
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This has had a significant impact on our CEOs. In Q3, 36% stated that their supply chain is worsening. As Geoff Lawrence, Vistage UK and Ireland Managing Director, says:
“Since reaching the peak of the Confidence Index a few months ago in the UK, there has been a noticeable change in SME optimism as the economic conditions change in the last quarter. The biggest concern for businesses is the ongoing supply chain disruption and recruitment challenges, particularly in the retail and manufacturing sector.”
While 75% of CEOs expect to increase their employee numbers over the next 12 months, this could be a challenge. The ONS reports that total job vacancies reached 1.1 million between July and September - the highest figure since records began in 2001.
With so many vacancies and so few candidates, employers have been forced to increase wages to both attract and retain talent. ONS data reveals a 6% rise in average pay: a figure that many fear could create further inflationary pressure.
These statistics are mirrored by our Confidence Index respondents. In Q3, 70% reported difficulties in recruiting and retaining talent. As a result, 71% have increased wages to compensate.
The number of vacancies has impacted on retention too. 31% of CEOs are seeing greater levels of employee churn, and 40% of leaders are seeing it impact on their ability to operate at full capacity.
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