Declining customer demand a top challenge for mid-sized businesses amid high cost of living and fall

  • Waning customer demand is a top concern for two fifths of businesses over the next six months
  • Borrowing costs are also a significant concern, with almost a third struggling with monthly repayments
  • Businesses are calling on government to help improve access to capital, boost productivity and provide further support with borrowing costs
  • Despite headwinds, mid-sized companies are eyeing growth in the UK as top priority for the next six months

A fall in customer numbers and spending is a top challenge for almost two fifths of mid-sized businesses (39%) over the next six months, as high costs remain a pressing challenge for households and companies alike, according to new data from accountancy and business advisory firm, BDO.

According to BDO’s latest bi-monthly survey of more than 500 mid-sized businesses, these concerns are most worrying for 51% of manufacturing businesses, as order volumes fall short of factory output growth. The Make UK/BDO Manufacturing Outlook showed activity for the final quarter of 2023 improved but has not been matched by an uptick in manufacturers’ order books.

Fears of falling customer numbers and spending is also above the UK average for the hospitality and leisure sector (41%). These businesses are continuing to feel the impact of the cost-of-living crisis on customers’ spending power.

Over a fifth (21%) of businesses continue to report difficulty accessing capital, including bank loans, private equity and venture capital. The same number also listed high interest rates and borrowing costs as a top challenge over the next six months. This follows the Bank of England’s decision to maintain interest rates at a record 5.25% in December, with the next decision due at the start of February.

With floating interest rates driving up costs a significant concern for 26% of businesses, monthly repayments are an acute pressure for even more.

Over a quarter (28%) report significant concerns over higher monthly repayment amounts and depleting cash reserves. According to the research, monthly repayments, including leftover loans from COVID-19 pandemic support schemes, are now proving unaffordable for nearly a third (32%) of mid-sized firms.

Despite cost pressures, businesses are remaining resilient. When asked about priorities for the next six months, growth and expansion is still a top priority, with one in five (20%) wanting to grow their presence across the UK.

Technology and media businesses are the most focused on UK expansion (27%), closely followed by hospitality and leisure businesses (23%). In comparison, less than a fifth (16%) of mid-sized businesses are prioritising growth opportunities abroad.

As the next general election looms, businesses are calling on the government to improve access to finance in the mid-market. More than a quarter (28%) believe that financial incentives targeted at mid-sized businesses, specifically capital allowances or temporary business rates cuts could help their business, whilst the same number would like support to reduce borrowing costs, such as low-interest loans or a grants programme, to be a priority.

Almost a third (31%) want to see regulatory changes tackle difficulty accessing capital, including encouraging smaller banks to enter the market or pension funds to invest in non-listed businesses.

Richard Austin, Partner at BDO LLP, said: “As high costs and a drop in customer spending remain an issue despite inflation receding according to the latest official data, it’s heartening to see businesses remain optimistic about some expansion and growth on UK soil.

Mid-sized businesses are the engine of the UK economy, providing around a quarter of jobs across the UK. However, market conditions are challenging, and they can only fulfil their growth potential with targeted support from the government. A clear focus is needed to improve access to capital, manage high interest rates and reduce borrowing costs over the months ahead. Their growth will play a key role in the recovery of the UK economy.

ENDS

Note to editors

Accountancy and business advisory firm BDO LLP provides integrated advice and solutions to help businesses navigate a changing world.

The organisations we work with are Britain’s economic engine – entrepreneurially-spirited, high-growth businesses that fuel the economy.

We understand the ambitions and entrepreneurial mindset of those we work with and have the global reach, integrity and expertise to help people and businesses succeed.

BDO LLP

BDO LLP operates in 17 offices across the UK, employing 7,500 people offering tax, audit and assurance, and a range of advisory services. BDO LLP is the UK member firm of the BDO international network.

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The BDO global network provides business advisory services in 166 countries and territories, with more than 115,000 people working out of 1,776 offices worldwide. It has revenues of US$14 billion.

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Ella Hatfield
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ehatfield@headlandconsultancy.com

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