Greater economic uncertainty and softening of equity markets
Since our last report, a number of significant events have taken place that has, or will, shape small business finance markets. On a broad level, there is a greater degree of macroeconomic uncertainty, in part due to the UK’s decision to leave the European Union, and SME investment intentions remain subdued. Such uncertainty impacts market sentiment, with equity finance, often used by firms scaling up, particularly sensitive to these changes.
Whilst equity finance remains available, late 2015 represented a peak in activity, and value and deal flow has eased in the past year. The Bank will continue to monitor carefully these markets to judge whether further policy action is required.
A changing policy context
The policy context the Bank works has also evolved in a number of important ways. The Competition and Markets Authority (CMA) published its inquiry into SME retail banking last summer, with a range of remedies proposed
to make markets work better. A central insight from that inquiry was that, on the whole, small businesses are poorly engaged with financial markets despite their importance to the health of businesses, perhaps best illustrated by the very low levels of switching between providers. A similar conclusion was reached
by a BEIS Select Committee Access to Finance inquiry reported in October 2016 – that businesses need better information so they can engage with the market and better understand their options.