Brokers sceptical about end of year inflation targets

The June research, in which one hundred SME finance brokers submitted nearly 1,00 total loan applications, showed 75% expect inflation to remain above 5% at the end of 2023.

While inflation fell to 6.8% in July, core inflation remained at 6.9% with a projected further rate rise in August. Iwoca’s study shows poor confidence in Rishi Sunak’s bid to half inflation from 10.7% by the end of the year, with a mere one in eight brokers expecting rates to drop to 5.4% by December 2023.

81% of brokers specialising in small business financing believe prolonged high costs over the course of next year will impact the growth of SMEs. Along the same vein, uncontrolled inflation would affect the economic growth prioritised by the Government.

In the last three months, SMEs have been further inhibited by the reluctance of traditional lenders to offer them funding, with 84% of brokers – up by 8% -- saying the banks have reduced funding for SMEs. 

81% also believe the demand for SME funding will grow over the next 6 months, while the highest number of brokers since January 2022 at 27% do not expect the SME lending environment to return to pre-pandemic levels for at least a year, and the funding gap to widen. 

Colin Goldstein, Commercial Growth Director of iwoca, commented on the impact of continued high rate of inflation on reducing small businesses’ ability to grow and invest. He added, “brokers don’t have confidence that progress will be made by the end of the year. With high street banks continuing to pull back from SME lending, small businesses need attractive options for financing, or the significant growth potential that they offer the economy will be lost.”

Most of the data contributes to fears that a recession is in the pipeline. 20% of brokers, a figure that has doubled since March, say their small business clients are ‘very concerned’ about the possibility of a recession. 71% of brokers, which increased by 8% since last quarter, say their small business clients are concerned overall about the possibility of a recession.

James Robson, CEO of Fund Onion, supported the opinion that inflation will likely increase in the second half of 2023. He continued, "We deal with a broad range of SMEs, who are consistent in their demand for debt finance to fuel their growth and alleviate cashflow issues. Recently, we’ve also seen a growing interest from SMEs in exploring new financial products that could ease cashflow concerns. Ultimately, however, term loans are proving particularly popular among business directors and managers, owing to their flexibility and familiarity.”

Also showing concern for a ‘bleak’ outlook for a recession, Vivek Singh, broker at Phoenix Commercial Finance, said, "With energy prices showing no sign of falling, SMEs are bracing for tough months ahead.

"Recession fears are real for the SME community, which is in survival mode. Short-term funding for cashflow issues is still a popular choice for finance as smaller businesses put growth on the backburner. Our SME clients are grappling with high costs, and scaled back government support, which is driving up the number of insolvencies in 2023."