Economic pessimism grows post-Budget as recession fears rise

Economic uncertainty is on the rise for the UK’s 5.6 million small and medium-sized enterprises (SMEs) following the Autumn Budget, according to iwoca’s Q3 2024 SME Expert Index.

The percentage of brokers reporting pessimism among their SME clients about the future has more than doubled, rising from 15% last quarter to 34%.

Meanwhile, only one in three (36%) brokers report that small and medium-sized firms feel optimistic, down from 56% in the previous SME Expert Index.

Mirroring this anxiety, concerns about economic downturns have resurfaced among small and mid-sized companies, with nearly half (47%) of brokers saying SMEs are concerned about the possibility of a recession. This has risen from 35% and marks a reversal of a year-long trend in which brokers reported that recession concerns had steadily decreased.

Amid mounting financial pressures, SMEs are shifting focus from growth to survival. Managing cash flow is now the top reason for loan applications, cited by 61% of brokers—up from 49% a year ago.

In contrast, only 36% of brokers say their SME clients are seeking loans to drive growth, the lowest proportion recorded since Q3 2023. This shift underscores the immediate need for financial stability as economic challenges intensify.

As SMEs grapple with rising costs and economic uncertainty, demand for larger loans is on the rise. Nearly half (45%) of brokers anticipate a significant increase in applications for loans exceeding £100,000 over the next year, up from 28% last quarter.

High-value loans are becoming increasingly important, with 15% of brokers expecting growth in loan applications above £200,000. Reflecting this trend, iwoca recently doubled the maximum amount available through its flagship Flexi-Loan, allowing SMEs to apply for up to £1 million in finance.

Colin Goldstein, Chief Commercial Officer, UK at iwoca, said, “Rising pessimism and fears of a recession are reshaping SME mindsets, with a greater focus on survival over growth. We’ve seen a surge in demand for larger loans from businesses looking for extra financial stability in uncertain times.

“We’re proud to have recently increased the Flexi-Loan limit to £1 million, providing SMEs with the tailored, flexible finance they need to regain confidence and reignite growth ambitions.”