Proportion of small businesses predicting organic growth hits two-year high as omicron restriction ease

After a challenging festive trading period for many small businesses, our latest findings are very positive. Overall confidence, defined as the proportion of businesses predicting growth, has now held firm for three consecutive quarters - with an important year-on-year improvement in businesses transitioning from contraction or standing still to predicting modest or organic growth. These are green shoots, a sign many are turning the corner, or planning to.

Now in its ninth year, the tracking study by Novuna Business Finance reveals that whilst the percentage of small business owners predicting significant growth for the next three months remained unchanged from this time last year, the larger group predicting organic growth has risen sharply. Compared to this time last year, there have also been falls in the proportion of small businesses predicting contraction or collapse.

More than three in 10 small business owners (32%) have started 2022 predicting organic growth for the next three months - the highest level since January 2020.

Small business growth predications: Annual trends 2018-22

(Column percentages)

Short-term changes since Omicron restrictions

The percentage of small business owners predicting net growth rose in the construction sector (up from 26% to 38%), real estate (up from 24% to 36%) and confidence more than doubled in agriculture - up from 12% to 23%. In contrast, those industry sectors hardest hit by Christmas Covid restrictions saw a fall in confidence for this quarter. In retail, the percentage of small businesses predicting growth fell from 29% to 23% and in the troubled hospitality sector growth predictions fell from 34% to 29%.

Percentage of small business owners that predict net growth: 

Quarterly comparisons (column percentages)

Welsh and Scottish businesses bounce back from lockdown

The key regional highlights were in Wales and Scotland, where growth predictions for the next three months hit a 9-month high.

Elsewhere, London saw a moderate increase in the percentage of small businesses predicting growth, but there was a sharp fall in the South East (falling from 39% to 27%).

Home working as productive as returning to work

The research also suggests working from home can be equally as productive as returning to the office. Nationally, 39% of small businesses unaffected by Covid predicted growth for the next three months, compared to 37% of enterprises whose staff will continue to work from home. It was businesses that had been temporarily closed as a result of Covid (20%) - or were having to re-purpose their services on offer (27%) - that were far less likely to predict growth for the next 3 months.

The research also reveals a correlation between growth outlook and progressive view towards technology and the environment. Businesses that had fully used technology to drive operational efficiencies were far more likely to predict growth than those that had not innovated enough (27%), or who struggled to make full use of it (18%).

On green issues, small businesses that were working on a clear plan to become carbon neutral were also far more likely to predict growth (54%) compared to those enterprises that were taking small steps on sustainability (37%) or were doing nothing (28%). Whether sustainability drives growth - or whether growing businesses take the issue more seriously - the research indicates a clear trend; investing in sustainability correlates with business growth and confidence.