UK's middle market managers feel left out in the cold by government

Middle market managers' confidence in prospects for their own companies and for the UK economy is waning fast - but not because of the widely publicised environmental, transport or dot com crises. Their concerns centre on factors that directly affect the bottom line - the world economy, exchange rates, cash flow, order books, red tape and taxes. An increasing percentage of middle market managers feel that the government does not understand their needs. What is worse, many feel existing policies are actually hurting their businesses. They want to see a new policy agenda which promotes the growth of the UK's backbone companies.

These are just some of the findings in the latest edition of the Gresham Monitor. The Monitor is a survey of the middle market commissioned by Gresham Trust, the private equity house which specialises in investing in this key sector of the UK economy.

Highlights

The downward trend in optimism about prospects for business growth has worsened. Just 59 per cent are optimistic, down from two-thirds in December and three-quarters a year ago.
Only 44 percent are making plans on the basis of UK economic growth, against 57 per cent in December.
Two-thirds feel the government does not understand their needs and over half say existing policies have hurt their businesses.
70 per cent say red tape and regulations have got worse in the past year.
Their appetite for future funding is shifting from debt to equity-only a fifth put a bank loan as their first choice against 46 per cent in December.
82 percent regularly trade outside the UK and a third do more than 40 percent abroad; 55 per cent say the strong pound is hurting their business, up from 41 per cent in December

The survey continues to track the sector's financial performance and investment intentions. While turnover figures are little changed on previous surveys and more companies reported higher profits, the survey sounds warning bells. More companies experienced squeezed margins, often an indication of things to come. Less than a third of the companies reported higher margins against 40 per cent in December, while two-thirds said margins had fallen or stayed the same compared to 57 per cent last time. Nearly half revealed that skill shortages have worsened, and the percentage of companies planning to increase investment has fallen again (46 per cent against 56 per cent a year ago).

Paul Marson-Smith, managing director of Gresham Trust, said today: "The Monitor clearly shows that the health of this key sector of the UK economy is under threat. Middle market managers feel, at best, ignored and, at worst, undermined by existing policies. As a new term begins, the government has the perfect opportunity to listen and respond with a new agenda to help the UK's backbone companies."

Manufacturing and service companies differ in their reactions to certain issues. The Monitor shows that the strength of sterling was hurting 69 per cent of manufacturers compared to 41 per cent of service companies. But more manufacturers were keeping tighter control over costs - just a third reported higher overheads compared to 47 per cent of service firms.

Optimistic
Total 59% (67%)
South 62% (70%)
Midlands 57% (64%)
North 53% (65%)

Pessimistic
Total 23% (14%)
South 19% (10%)
Midlands 23% (14%)
North 31% (18%)

Middle market companies in different regions also show variations. Three-quarters of businesses in the Midlands felt misunderstood by the government, compared to half of those in the North and 61 per cent of Southern firms. More Southern companies were optimistic about their own growth prospects - 62 per cent against 53 per cent of Northern companies and 57 per cent in the Midlands. Some 53 per cent of Northern companies transact more than 40 per cent of their business abroad against around a quarter of Southern and Midlands companies.