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The Real Economy: 71% of businesses ready for recession

Recent research suggests almost three-quarters of UK businesses are feeling resilient despite the exceptionally tough economic outlook. According to the latest RSM UK ‘The Real Economy Report’ 71% of middle market businesses say they are prepared to face the recession.

While businesses seem confident in their ability to navigate the economic headwinds, RSM’s research showed almost half of businesses (44%) now feel rising energy prices present their biggest risk, while increased cost of finance (30%) and rising staffing costs (30%) are equally viewed as their second biggest. Supply chain disruption also continues to be considered a threat by over a quarter (28%) of businesses.

Record inflation this year has forced nearly half (44%) of businesses to increase their prices, and almost a quarter (24%) are unable to pass this additional cost on to their customers. Almost half of those businesses experiencing increased cost pressures expect this to last at least 12 months.

Paul Anthony, regional managing partner, RSM South said: ‘Record inflation, energy price shocks, the Brexit aftermath, supply chain issues and the pandemic have all combined to create a perfect storm for middle market businesses in recent months. Some sectors, such as retail and manufacturing, are undoubtedly battle scarred by months of increased costs and barriers to trade, but others – particularly those that are not so reliant on energy – such as financial services, legal and fintech, are coping well and even spotting the opportunities in the current tough economic climate.’

RSM’s report shows middle market businesses are demonstrating resilience and fighting back with a range of measures to stay afloat. These include more than a third (39%) improving energy efficiency, around a third enhancing operational efficiency (32%) and seeking cheaper supplies (31%) and over a quarter (26%) reducing their capital expenditure.

Almost half (43%) of businesses said they were facing higher labour costs, with almost a third (31%) considering making redundancies to reduce staff costs.

Many say they are also looking to access finance, either to weather the recessionary storm ahead or maximise opportunities, such as acquisitions of struggling companies. Over a third (36%) want to access finance to make capital investments, while more than a quarter (29%) want to undertake opportunistic acquisitions.

Worryingly though, more than a quarter want to access finance to address concerns over breaking exiting covenants, suggesting they are at risk of defaulting on their financing obligations.

Jason Stone, head of special situations, mergers and acquisitions, RSM UK adds: ‘The question of financing and investment options will be a consideration for many businesses next year. Stronger companies will capitalise on the opportunity, by making strategic acquisitions for future growth. Companies with a more worrying debt structure should seek advice early to avoid the spectre of breaching financing obligations and potentially ceasing to trade. Both types of companies are increasingly aware that growth does not necessarily require conventional financing, with many companies open to alternative financing methods and equity investments.’

*The research was carried out by The Harris Poll for RSM. 413 senior executives from UK middle market businesses, defined as companies with a turnover between £10m and £750m, or financial institutions with assets under management of £200m to £7.5bn, were surveyed for the research.

Data for this survey was collected between 3 October and 22 October 2022. Information was collected online or via telephone from 413 executives meeting the set criteria. All individuals qualified as executive level decision makers working across all regions and a broad range of industries. Responses have been weighted to ensure a true representation of the UK economy.

Chart percentages may not equal 100 per cent due to rounding.

**Source: ICO (Information Commissioner’s Office).

RSM is a leading audit, tax and consulting firm to the middle market with nearly 4,900 partners and staff operating from 31 locations throughout the UK. For the year ending 31 March 2022, RSM generated revenues in excess of £425m. RSM UK is a member firm of RSM International – the sixth largest network of audit, tax and consulting firms globally. The network spans more than 120 countries, over 860 offices and more than 51,000 people, with global revenues of over £5 billion.

RSM has teamed up with leading data specialists Moody’s Analytics and The Harris Poll to launch the RSM UK Middle Market Business Index (MMBI) – the first economic index to focus solely on middle market businesses in the UK.

The first-of-its-kind quarterly index, which forms part of it’s The Real Economy series, presents unique insight into the health of this market, whilst drawing on credible forward-looking indicators to deliver predictive economic insight.

The middle market is defined here as companies with revenues of £10m to £750m, of which there are close of 33,000 firms in the UK, accounting for 10 million jobs and one-third of private company turnover.

The middle market is predominately made up of privately held firms for which there are few sources of timely, public information. Yet, many surveys target large or small companies and so the mid-market is underrepresented in policy and economic debate. To bridge this gap, RSM UK is polling mid-market companies to gain insight into how this part of the economy thinks and behaves.

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Sarah Irving

Head of Marketing & Communications

Direct dial: 01753 870500

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