Confidence among the business services sector has improved slightly during Q2, despite the fact that output has declined over the quarter and the industry is performing well below levels seen before the recession, according to the latest Business Factors Index from Bibby Financial Services.

March saw a period of considerable growth in the business services sector, with output reaching its highest since October 2008. However, this high level of productivity has not continued in to Q2 and there has been a significant fall in prosperity for the sector over the last three months. Despite this, it appears that the peak in March has helped to maintain optimism and confidence among businesses in the sector.

The Index for the business services industry shows that:

• The number of small and medium-sized businesses reporting that conditions are tough, or that they have had to make cuts, has fallen significantly from 39 per cent in Q1 to just 26 per cent in Q2. This is the lowest percentage of any sector
• Furthermore, a third (33 per cent) of small and medium-sized firms claim that trading conditions are stable and they are hopeful for the future, an increase of 11 per cent since Q1
• When looking at larger businesses, those with a turnover of more than £1m, it appears that optimism is even stronger, with only 11 per cent of large firms claiming that conditions are tough, or they have had to make cuts

A recent survey by the Confederation of British Industry (CBI) mirrors these findings, revealing that while optimism in the business services sector is improving, productivity continues to be hit by falling prices and increased costs.

Despite the positive sentiment shown among firms of all sizes within the Index, owners and managers in general appear to be taking tentative steps towards recovery and are aware of the fragility of the UK economy.

The Index shows:

• An average of 47 per cent of firms have been managing supplier relationships more carefully in order to improve efficiency and competitiveness
• The majority of small firms (35 per cent) believe that the loosening of lending criteria and credit availability would be the quickest way to recover
• This feeling is more prevalent in the business services sector than any other industry, bar manufacturing, indicating that access to finance is becoming a greater barrier to the recovery and growth of the industry

Colin Baldwin of Total Marketing Associates commented: “Business is good, we have seen an increase in output over the last three months. We are currently expanding the business and taking on more staff a move which has come from an increase in sales. There has also been an improvement in business performance from12 months ago as we are capturing more of the existing market, and have consequently seen growth in some areas of the business. We were affected a year ago because the publishing industry moved away into digital to save costs in the recession.

“The most important issue for businesses in the industry is lending and the availability of credit. We have no cash flow problems because of the finance provided to us by Bibby Financial Services. For the economy as a whole, I think unemployment will create a dip and a full recovery could be over a year away.”

Edward Winterton, recruitment finance specialist at Bibby Financial Services commented: “Despite the continued level of optimism among firms within the business services sector, it is concerning to see a lack of growth in the industry, which is now the poorest performing. The recruitment market, which is key to the sector, has experienced many challenges over the quarter, namely the slow rate of recovery in the jobs market, and faces more obstacles in the coming months, which may have a detrimental effect on the industry as a whole.

“As a result, many have already been forced to take stock of their companies and improve the efficiency of their business, through managing their suppliers more carefully and streamlining business processes. Employers will also have been dissuaded by the announced one per cent National Insurance hike, which takes effect from 2011, and this is certain to have an impact on their hiring strategies over the forthcoming months.

“It is also evident that businesses within the sector are frustrated by the lack of support for funding, and one of the main barriers for growth, is access to finance. With this in mind, it is more important than ever that firms of all sizes ensure they have adequate funding in place in order to advance their business, stimulate growth and get this industry moving forward again.”

The Business Factors Index, compiled by specialist invoice finance provider Bibby Financial Services, tracks movements in small business turnover. For the first time since the start of the report in July 2007, the Business Factors Index also includes qualitative data from a number of the UK’s large organisations – those with a turnover of £1million or more. The trends derived from this data have been collated alongside the results of a series of interviews conducted with more than 500 business owners, from a range of businesses across the UK, to produce a comprehensive overview of how UK firms are faring in the current climate.

The Business Factor Index is issued by Bibby Financial Services and is available online at