Business growth hits 5-year low as investment falls

The weakest household spending for three years and falling levels of business investment dragged the economy to the worst quarter for five years, according to the latest figures from the Office for National Statistics (ONS).

The ONS confirmed its previous estimate that GDP growth slumped to 0.1% in the first quarter, while sticking to its view that the “beast from the east” had little impact.

As small business accountants we have a huge amount of experience in helping SMEs through tougher spells just like this.

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The latest figures will further stoke concerns over the strength of the UK economy, amid increasing signals for deteriorating growth as Britain prepares to leave the EU next year. Some economists, including officials at the Bank of England, thought the growth rate would be revised higher as more data became available.

Those based at Bank of England HQ on Threadneedle Street delayed raising interest rates earlier this month after the weak first GDP estimate, despite arguing that the negative hit to the economy from heavy snowfall in late February and early March had probably been overblown. Instead the ONS said it had seen a longer-term pattern of slowing growth in the first three months of the year.

According to the figures it seems that overall, the economy performed poorly in the first quarter, with manufacturing growth slowing and weak consumer-facing services.

While some suggest bad weather will have had some impact, particularly for firms in the construction industry and some areas of the retail business, statisticians say the overall effect was limited, with increased online sales and heightened energy production during the cold snap.

The figures show the services industries contributed the most to GDP growth, with an increase of 0.3% in the first quarter, while household spending grew at a meagre 0.2%. The construction industry declined by 2.7% and business investment fell by 0.2%.

Much will now hinge on how consumers fare over the coming months, with some early indications there could be a rebound in stronger retail sales data for April.

Given the increase in job creation in recent months there is some expectation for recovery in the second quarter, with GDP growth of around 1.3% for 2018 as a whole, according to reports.

19% of new entrepreneurs don’t expect support

The new figures certainly align with recent reports published by our own team of small business accountants, which highlight the fact that of seven million entrepreneurs with advanced business plans, 19% of them don’t expect any support from the government or lending institutions.

Those surveyed accounted for 13% of the population and are drawn from all walks of life and demographics.

If their business plans were realised they would massively boost the UK’s private sector economy which currently accounts for 4.8 million businesses.

How can new businesses get support?

One of the best alternative routes to funding now available to small businesses is the Enterprise Investment Scheme, or EIS.

Launched in 1994, the Government hoped EIS would encourage high-earning individuals to invest money in small companies which, otherwise, may have seemed too risky.

The scheme creates a huge opportunity for entrepreneurs and small business owners as they can leverage the tax breaks associated with the scheme to attract the investment they want or need.

The scheme offers investors a number of perks and incentives in return for investing in startups and small businesses.

Investors are offered income tax relief in proportion with the cost of the shares they purchase through EIS, and should they make a loss upon the sale of their scheme shares, they have the opportunity to claim loss relief, which not only cuts their tax bill but also illustrates the reduced risk involved in EIS.

EIS is geared towards early-stage, new investment in companies with low levels of staff, assets and turnover, thus making the scheme integral to supporting the creation and growth of business in the UK.

Another option is SEIS. Launched by the government in April of 2012, SEIS intends to encourage investors to finance startups by providing tax breaks in return for backing projects they may otherwise have viewed as being too risky.

As is the case with EIS, SEIS creates a huge opportunity for entrepreneurs and small business owners as they can leverage the tax breaks associated with the scheme to attract the investment they want or need. Investors can receive initial income tax relief of 50% on investments up to £100,000 per tax year in qualifying shares issued on or after April 6th, 2012.

Get in touch with our team of accountants to discuss what you need to do to attract investment for your small business.