UK economic recovery may hinge on investments into SMEs – investors comment

Question marks

As the second quarter showed the worst quarterly fall in output ever recorded in the UK, investors point to how the recovery of the UK economy as a whole may rely on the prosperity of SMEs, start-ups and high-growth firms. 

“The UK’s fall into recession feels like the longest movie spoiler in history, with the Bank of England predicting a more than 20 per cent fall in output a week ago,” said Adam Vettese, analyst at multi-asset investment platform eToro.

“However, today we have received confirmation that the second quarter was the worst quarterly fall in output ever recorded, highlighting the scale of the task facing the Government and more specifically the Treasury,” added Vettese.

From an economic perspective, it is unlikely the UK can afford another national, or even widespread, lockdown. The GDP figures that came out today confirm that not only is the UK formally in recession, but it is the most severe in the country’s history and deeper than any of the other economies in G7.

According to Douglas Grant, director of Conister Finance & Leasing Limited, SMEs are not only the lifeblood of the economy, this is where innovation and creativity happens.

“Since the epidemic took hold, the UK Government has been quick to back sectors that are resilient to recessions and market volatility, providing financial security and protection through initiatives such as the bounce-back loans scheme,” he said.

Grant continued: “It is imperative that SMEs have a tripartite level of sustainable support from Government, alternative and traditional lenders working together to identify and protect the more resilient sectors such as infrastructure, technology and renewables, ensuring their existence guaranteed.”

IW Capital is a private equity firm focused on investing in British SMEs. In Luke Davis’s view, CEO of IW Capital, the figures are not wholly surprising given the catastrophic impact of lockdown, but he says that many firms are optimistic and want to grow. 

“Opportunity comes out of crises, the global financial crash of 2008 led to the creation of the FinTech industry that is now one of Britain's most successful sectors. There will undoubtedly be firms and sectors that will go on to make this impact. If current conditions persist - and there is no second wave - I would be surprised if the recession continues into next quarter,” explained Davis.

“The small business community and its success is as important to the economy as anything else in the near future. With an economic contribution of over GBP2 trillion, the success of the UK economy as a whole may in future hinge on the prosperity of SMEs, start-ups and high-growth firms," he added.