The Continental Research business omnibus shows that confidence in both the general economy and own trading prospects is returning amongst SMEs.

After a year of downbeat trading prospects and 18 months of negative net economic optimism, in the second quarter of 2009 there was a return to levels not seen since the summer of 2007. The data shows a significant rebound in confidence in own trading prospects: after a six month period of decline and an all time low reached in the first quarter of 2009, confidence has now returned to SMEs with Continental monitoring a rise of some 33 points – the largest movement in over a year, while economic optimism shot up by 50 points over the quarter. This data suggests SMEs are feeling some relief and becoming more positive about the economic outlook. The larger SMEs (more than 11 employees) were the most confident at 40 points while Q2 2009 was the first time in over a year that businesses with just 1 or 2 employees have given a net positive score for their own trading prospects.

Respondents continue to have more confidence in their own trading prospects than general economic optimism. This move is unprecedented and is the first time that opinions about net economic optimism and net trading prospects have converged in the ten-year history of the study. SMEs had remained confident in their own business prospects until early 2008 when the reality of the recession hit home and many started to struggle.

The results also reveal a regional trend with those in the South being most confident about their trading prospects, some 5 points more optimistic than their colleagues in the Midlands, and 28 points more optimistic than SMEs in the North. Northern businesses were more pessimistic than their Southern counterparts with only a modest recovery of 20 points, compared to 40 points for the South, and 35 points for the Midlands. This is a reversal of fortunes compared to when the economic downturn took hold at the beginning of 2008: SMEs in the South had much lower confidence in their net trading prospects than those in the North – a difference of some 23 points in the second quarter of 2008.

While manufacturing business were the most pessimistic about their prospects, in Q2 2009 they nudged into positive territory for the first time since the beginning of last year although confidence levels remain someway short of those seen prior to the start of the recession. Services businesses are by far the most confident about their trading prospects and have enjoyed a significant rebound since the first quarter – confidence levels are now almost back to those seen in the first quarter of 2008. A surge in confidence was also seen in the retail and distribution sector with levels nearing those of early 2008.

Shiona Davies, Director at Continental Research says “After a steady decline over the past two years, this research suggests that the outlook is finally improving - SMEs have renewed confidence both in their own trading prospects and the general economic outlook. With just one point separating net economic optimism and net trading prospects, we are seeing a convergence for the first time in the history of the omnibus. This convergence suggests that although SMEs may have regained some confidence, they are increasingly tying their own particular fortunes to those of the overall economy. This is a significant shift in perceptions and one that we will be monitoring closely in the coming months.