September 11, 2014, by Kelly Cookson

Do changes in aggregate GDP influence business decisions made by SMEs?

Gross domestic product (GDP) figures show that the economy is now 0.2% ahead of its pre-crisis peak. The figures, from the Office for National Statistics showed that the economy grew by 0.8% in the second quarter of 2014. In the August 2014 Business Barometer survey, our panel of UK small business owners and business advisers were asked how much influence changes in macroeconomic factors have on their business decision making.

The responses from small business owners were as follows:

How relevant are changes in aggregate GDP to your business decision making?
Very relevant	4.1%
Relevant	14.9%
Moderately relevant	27%
Of little relevance	32.4%
Not relevant at all	21.6%

 

Which other macroeconomic indicators are of significant influence to your business decision making? Tick all that apply.
Total tax revenue	15.5%
Exchange rates	23.9%
Inflation	49.3%
Average wages	36.6%
Interest rates	50.7%
Unemployment levels	21.1%
Other, please specify	12.7%

 

How often do you monitor macroeconomic indicators that could affect your business decision making?
Weekly	13.5%
Monthly	27%
Quarterly	23%
Rarely	29.7%
Never	6.8%

Adrian Smith of Triple S Clutch and Brake Services said: “GDP has risen above its pre-crisis peak only because we have a larger economically active population (mainly due to immigration). The pie is bigger but the number of mouths to feed is also bigger. I do not want to talk the economy down but companies like mine who rely mainly on domestic sales will not see real growth until productivity rises, leading to an increase in real disposable income.”

Another panellist commented: “The macroeconomic factors are important indicators. They influence confidence which itself affects business levels. It also influences markets with sometimes rapid changes in the stock market and other financial markets that impact on trade.”

UK business advisers were asked about their clients’ experience of monitoring macroeconomic indicators:

How relevant are changes in aggregate GDP to business decision making of the businesses that you advise?
Very relevant	1.1%
Relevant	12.4%
Moderately relevant	34.8%
Of little relevance	37.1%
Not relevant at all	12.4%
Don’t know	2.2%

 

Which other macroeconomic indicators are of significant influence to business decision making of the businesses that you advise? Tick all that apply.
Taxation	64%
Exchange rates	25.8%
Inflation	51.7%
Average wages	50.6%
Enterprise density	4.5%
Interest rates	77.5%
Unemployment levels	15.7%
Other, please specify	6.7%

 

How often do the businesses that you advise monitor macroeconomic indicators that could affect their business decision making?
Weekly	0
Monthly	20.2%
Quarterly	11.2%
Rarely	58.4%
Never	1.1%
Don’t know	9%

Panellist David Shaw said: “GDP indicators need to be borne out by experience on the ground – if they don’t match reality they get ignored. It’s all a question of relevance, a match between reality and theory and what customers are doing or saying.”

Another adviser panellist commented: “The collective indicators help define a level of business confidence, but the SMEs I advise do not incorporate them formally into their business planning process. Indicators of economic health closer to the business are the key drivers. Is demand for the product growing? Are we near capacity? What is happening locally which will affect demand?”

The UK Business Barometer and UK Business Adviser Barometer surveys are run by the Haydn Green Institute for Innovation and Entrepreneurship. The results of the surveys are instantly processed and posted on their respective websites: www.ukbb.ac and www.ukbab.ac

Businesses and advisers wishing to contribute as panellists on the project can register via the websites.

The UK Business Barometer has a group on LinkedIn.

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