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NatWest SME Purchasing Managers’ Index®

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Employment growth hits four-month high, despite stalling SME recovery

Key Findings
  • Output levels broadly unchanged as customers delay decision-making in June
  • Employment growth at its fastest since February as SMEs backfill vacancies
  • 36% of surveyed SMEs reported sustainability actions as a high priority in the next year
  • Just under a third of UK SMEs (29%) plan to at least partially switch to UK suppliers in the next five years
Business activity at UK small and medium-sized enterprises (SMEs) stalled in June with the NatWest SME Purchasing Managers’ Index recording 49.9, ending a seven-month period of sustained growth. Some surveyed SMEs suggested that decision-making among customers had slowed in the run-up to the general election, which led to delays with new projects and subdued domestic demand. NatWest’s index is a key indicator of the health of the UK SME economy. A PMI reading over 50.0 indicates growth or expansion, while a reading under 50.0 suggests contraction. Despite the slowdown, employment growth was its fastest since February as improved candidate availability allowed firms to fill vacancies and replace departed staff. Hopes of a broader economic recovery, lower borrowing costs and a post-election rise in demand also kept business confidence upbeat at 70.3 in June. Confidence levels among small businesses were close to those seen among large firms and much higher than the low of 56.2 recorded in October 2022. Sebastian Burnside, NatWest’s Chief Economist said: “Business activity stalled in June, rounding out a solid second quarter performance overall. A slowdown was to be expected after a strong start to the year and especially rapid GDP growth of 0.4% in May. But some small businesses also pointed to the General Election as a factor which delayed decision-making among their customers and led to subdued domestic demand. “Price rises have eased in recent months, but businesses and their customers are still feeling the squeeze. Higher staff costs, particularly due to the rise in the National Minimum Wage, have meant services firms have had to pass additional costs onto their customers. Manufacturing firms also attributed higher input costs to rising transport bills, especially for container freight from Asia. “However, business confidence remains high and job creation is at its highest level for four months. With inflation now back to the Bank of England’s target of 2% many firms are hoping for lower interest rates and an increase in demand from the consumer sector.” Sustainability goals across UK SMEs appeared somewhat on the back burner in the second quarter of 2024, as just 36% of the surveyed businesses reported sustainability actions as a high priority in the coming 12 months. While the headline figure was unchanged on the quarter, it remained notably below that seen when the survey first began in early 2020 (44%). However, the latest survey data showed that small and medium-sized businesses are keeping up with and in some cases, outperforming larger firms in terms of having already implemented greener action regarding their supply chains. 12% of UK SMEs have already at least partially reshored their supply chains, compared to 7% of large companies. Nearshoring – switching to suppliers which are geographically closer to the UK, but not in the UK – has also now been undertaken by 30% of surveyed SMEs, compared to 22% of larger companies. Notably, almost a third of SMEs (29%) reported plans to switch to UK-based suppliers within five years, in some cases prompted by shipping disruptions linked to the Red Sea crisis. Commenting on these findings, James Holian, Head of Business Banking at NatWest Group, said: “We’re seeing that a sizeable minority of SMEs – some 30% - have already moved their supply chains closer to the UK, and 12% have already at least partially switched to UK-based vendors. And when you look at the next five years, just under a third of SMEs are planning to reshore their vendors. “There are various reasons SMEs might move their suppliers to closer to home – not least to drive down costs, lower their carbon footprint and reduce their risk exposure to geopolitical events. However, there is never a one-size-fits-all solution. My advice to SMEs is to map your mix of suppliers and identify any gaps. Look at where the goods come from, where they go to, and what the capacities of your suppliers are. Speak to suppliers to understand their challenges and work together to develop solutions.” Notes for editors
  • The NatWest SME Purchasing Mangers’ Index is a quarterly report, designed to monitor business performance and sustainability actions at UK enterprises with 1-249 employees. Results are compiled from responses to S&P Global UK Purchasing Managers’ Index® (PMI®) surveys.
For more information, please contact Lucy Chislett, Media Relations Manager on 07974864900 or lucy.chislett@natwest.com Notes to editors About the NatWest Sustainable Business Tracker The NatWest SME Purchasing Managers’ Index is a quarterly report, designed to monitor business performance and sustainability actions at UK enterprises with 1-249 employees. Results are compiled from responses to S&P Global UK Purchasing Managers’ Index® (PMI®) surveys. We track sustainability actions among small and medium-sized enterprises (SMEs) across five main categories. The latest report includes a special feature on renewable energy investment plans for the year-ahead. The panel of around 850 small and medium sized enterprises is stratified by detailed sector, based on contributions to GDP. Survey responses are collected by S&P Global in the second half of each month and indicate the direction of change compared to the previous month. A diffusion index is calculated for each survey variable. The index is the sum of the percentage of ‘higher’ responses and half the percentage of ‘unchanged’ responses. The SME PMI® indices vary between 0 and 100, with a reading above 50 indicating an overall increase compared to the previous month, and below 50 an overall decrease. The indices are then seasonally adjusted. Indices are compiled for a range of survey variables, including business activity, new orders, employment, input costs, prices charged, suppliers' delivery times and future activity. The SME PMI® data for June were collected 12 – 28 June 2024. Historical data are available from January 1998 for the All-Sector SME Business Activity Index. Manufacturing data are available from January 1992, Services data from July 1996 and Construction data from April 1997. SME Sustainability PMI® data are compiled on a quarterly basis. The SME PMI® data are compiled on a monthly basis. The latest SME Sustainability PMI data were collected in Q2 2024. In each survey, companies are asked what sustainability plans they are looking to prioritise over the next year, and the results are compared against those seen for large companies. For further information on the PMI survey methodology, please contact economics@spglobal.com. About NatWest Group NatWest Group is a relationship bank for a digital world. We champion potential; breaking down barriers and building financial confidence so the 19 million people, families and businesses we serve in communities throughout the UK and Ireland can rebuild and thrive. If our customers succeed, so will we. About S&P Global S&P Global (NYSE: SPGI) S&P Global provides essential intelligence. We enable governments, businesses and individuals with the right data, expertise and connected technology so that they can make decisions with conviction. From helping our customers assess new investments to guiding them through ESG and energy transition across supply chains, we unlock new opportunities, solve challenges and accelerate progress for the world. We are widely sought after by many of the world’s leading organizations to provide credit ratings, benchmarks, analytics and workflow solutions in the global capital, commodity and automotive markets. With every one of our offerings, we help the world’s leading organizations plan for tomorrow, today.

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