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Does Business Confidence Equal Growth?

Why is a growth in exports not translating into significant growth in the wider economy? Recent surveys have shown that the value of a weak Sterling in helping British manufacturers and exporters increase their orders, and the government has been hailing exports as one of the ways for businesses to achieve growth. Rising orders and revenue have combined to make emerging markets one of the best ways of combating poor European demands. So why is the UK not growing at a faster rate?

Despite an increase in exports, the UK economy is still only growing at a shaky rate. Key indicators are showing little real improvement, despite a temporary boost last year from the Olympics. There has been plenty of criticism about the restricted lending to businesses, in particular SMEs. However, access to finance is just one ingredient – it’s a combination of high costs and low confidence that appears to be dooming the UK economy to stagnant growth. While the weaker sterling has helped exports, the resulting inflation is counteracting the benefit through increasing domestic costs.

Business confidence has been damaged by austerity measures both in the UK and abroad. While Budget measures have been brought in to help SMEs, the slow pace of change when it comes to things like corporate tax cuts is only having a limited effect on business confidence and profits. The poor outlook for the Eurozone is also denting confidence, and with events such as the Cyprus bailout, the confidence from last year’s Olympic boost has been eroded.

So, is business confidence the thing that SMEs need to really achieve growth? Along with measures that limit domestic costs, a combined approach to help small businesses manage costs, identify risks and plan ahead could be the way to boost the economy.

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