Businesses dialling down on investments amid recession warnings - RSM

Middle market businesses are dialling down on their people and business investment as soaring inflation, escalating energy prices, falling consumer demand, monetary policy confusion and geopolitical pressures erode confidence.

RSM UK 's latest Middle Market Business Index (MMBI), the first economic index to focus solely on middle market businesses in the UK, shows a sharp fall in the proportion of firms hiring more staff - down from 41 per cent in Q2 to 33 per cent in Q3.

The quarterly index and survey of approximately 700 senior executives at middle market companies also shows the number of businesses planning to increase capital expenditure over the next six months dropped from 55 per cent in Q2 to 42 per cent in Q3.

The survey also found the weaker economic outlook was impacting negatively on the revenues of more middle market businesses in the current quarter with 36 per cent of firms now reporting lower revenues, compared with 27 per cent in Q2.

There was also a significant drop in growth expectations over the next six months with the number of firms expecting their revenue to rise over the next six months down from 59 per cent to 44 per cent, the first time it has fallen below 50 per cent.

Mark Taylor (pictured), regional managing partner of RSM West Midlands said: “The UK has the lowest business investment in the G7 and it is still almost 10 per cent below its 2016 level. Business investment in the US, by contrast, is 25 per cent higher than it was in 2016. This is a key reason why productivity growth in the UK has been so poor over the last decade.

“The surge in borrowing costs as a result of the recent fiscal stimulus will make it much more expensive for businesses to finance capital projects, which will weigh heavily on business investment over the next few years. Financial markets are now expecting interest rates to reach 5.5 per cent by this time next year. As there is very little evidence that lower corporation tax feeds into higher business investment, we are anticipating a 3 per cent drop in business investment next year.

“Investment into stimulating business activity and providing energy cost support need to be prioritised by the Prime Minister and her cabinet. Rising energy costs are a particular concern for the industrial sectors of the West Midlands.

RSM 's MMBI presents unique insight into the health of the middle market - the engine room for growth in the UK - whilst drawing on credible forward-looking indicators to deliver predictive economic insight over a six-month period.

For further information and to view the report visit the MMBI homepage.