Banking and financial services sector SMEs expect a promising 2024
Small and Medium Enterprises (SMEs) in the banking and financial services sector are looking forward to a promising 2024, as they expect to hit an average of 19% year-on-year revenue growth, bringing overall banking and finance SME turnover to £135.2bn.
New research outlined in the Ambition Index from Three Business – the B2B arm of the mobile network Three – has revealed SMEs in the banking and financial services sector feel a renewed sense of optimism and ambition, following the tough post-pandemic years.
Contrary to the International Monetary Fund’s (IMF) gloomy outlook, that Britain’s economy will be the slowest growing among G7 nations next year, SMEs in the sector are collectively planning to invest £16.8bn in growth in 2024, a 4% increase compared with 2022.
Over eight in ten (81%) banking and financial services SME leaders are planning to invest more in the next 12 months than in the last year. The top three areas of investment include staff training and development (29%), adoption of AI and other digital technologies (26%), customer service (25%), and marketing (23%).
Weathering the storm and showing resilience
Nearly three quarters (74%) of sector leaders say their business is more resilient now than before the pandemic, significantly higher than the national average of 65%. Three quarters (75%) feel more confident in their business having survived the fallout from the pandemic, and the ongoing cost of living crisis, and 73% feel more able to withstand shocks.
This positive attitude continues into 2024, with 84% saying they feel optimistic for the year ahead, and nearly three quarters (72%) saying the outlook for next year is better than they expected at the beginning of 2023.
Banking and financial services SMEs have shown agility in times of crisis, with almost all (97%) saying they introduced changes to their business in response to the pandemic and 66% admitting they had to adapt to survive.
Nearly three quarters (73%) have also come out of the pandemic and subsequent economic uncertainty feeling more capable of dealing with the pressures of running a small business.
Challenging times remain
While the future is looking brighter than it did last year, there remain a number of challenges for businesses of all sizes, which are often felt more acutely by SMEs.
Two thirds (67%) of leaders in the banking and finance sector said that the challenges they face as a small business are different to those faced by medium or large businesses, and 70% say the uncertain environment has intensified the risks and pressures of running a small business. These leaders are particularly worried about high interest rates (22%), high property costs (22%), the cost-of-living implications on customers (21%) and their business (20%), and political uncertainty (21%).
Looking ahead to the Autumn Statement, the optimism of sector leaders about their own business prospects does not extend to the broader political environment, with just 35% saying they are optimistic ahead of the Autumn Statement, 30% apprehensive and a quarter (25%) pessimistic.
Of the issues the chancellor is expected to address, SME leaders in the sector most want to see an increase in the threshold for Small Business Rate Relief (34%), measures to support the labour market, for example, childcare support and pension changes (34%), as well as rate relief to be extended past next April (32%).
Mike Tomlinson, managing director at Three Business commented: “Small and medium businesses are the lifeblood of the UK economy. It’s great to see the strong sense of optimism and learned resilience that’s coming through among all SME leaders, in particular in the banking and financial services sector. These leaders have shown that they have risk-proofed their businesses and are now ready to invest in their future, grow and take on the challenges of the next 12 months. At Three Business, we work in partnership with SMEs in all sectors and regions to make sure connectivity is an enabler for growth.”
Commenting on why she’s supporting the Ambition Index, business mogul, investor, mentor and TV star, Sara Davies says: “The last few years have presented numerous, often unforeseen challenges, but I work with some amazing businesses and leaders and have been so impressed by their resilience and how they have adapted. The UK’s SMEs are vital contributors to the economy and to their communities, and I’m genuinely excited looking ahead to next year knowing there is so much appetite for growth and investment, as The Ambition Index shows.”
The UK picture for SMEs
Across the board, UK SMEs are looking forward to an average of 15% year-on-year revenue growth, bringing overall SME turnover from £2tn in 2023 to £2.3tn next year[1]. They are collectively planning to invest £252bn in growth in 2024, a 27% increase compared with 2022. This means that UK SMEs are planning to invest a sum that is approximately equal to the value of the economy of Finland during 2024.
Investment in recruitment is on the agenda of business leaders across all sectors, with a quarter (24%) saying they are planning to make it a priority. This would make for an estimated collective spend of £20.4bn, equivalent to an extra 630,000 jobs paying the UK average annual salary of £32,000 per year[2].
Other areas of investment focus for SMEs in 2024 include:
- Marketing, with a collective estimated planned spend of £35.1bn
- Staff training and development – £27.2bn
- Customer service – £24.7bn
- Improving facilities or tools – £22.3bn
- Digital technologies, including AI – £19.7bn
To read the Ambition Index, visit: https://www.three.co.uk/business/the-ambition-index
[1] Calculated using baseline 2023 revenues from ONS data, October 2023
2 ONS: https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/bulletins/annualsurveyofhoursandearnings/2022