By Paula Fagan, Marketing Manager
This is the second article in our Clarity series where we look at UK SME viability and vulnerability across sectors and regions to provide professional advisers and business owners with powerful insights. In this article, we look at regional variations in recent SME performance and risk profiles to unlock potential for SMEs.
This is the second article in our Clarity series where we look at UK SME viability and vulnerability across sectors and regions to provide professional advisers and business owners with powerful insights. In this article, we look at regional variations in recent SME performance and risk profiles to unlock potential for SMEs.
2025 is already proving to be a tough year for the UK’s small and medium-size enterprises (SMEs), with
SME confidence having fallen to a record low. The subdued confidence and lack of certainty are reflected in downbeat projections for UK economic growth.
Our Clarity research provides data-led indicators of financial distress among SMEs across UK regions, as well as key sectors of the economy, allowing us to pinpoint vulnerabilities. With the UK facing a challenging and uncertain economic outlook, it is vital that businesses take positive actions in the areas within their control.
Exploring regional disparity
Regional inequality in the UK is a multi-faceted problem with both strategic and structural causes.
Our latest Clarity data reveals that UK regions continue to have significant variation in SME performance and risk profile. Regional fortunes in the UK continue to be contrasting in the extent to which productivity, incomes, and even job-creation differ from region to region. Crucially, however, the vulnerabilities may not be immediately obvious, with some SMEs performing well according to one set of indicators, but they are struggling on others.
Assessing UK regions to unlock potential
Our Clarity research compares and contrasts regions using a series of financial performance ratios that speak to an SME's financial health - these are then correlated with stress/distress and growth indicators. The quantifiable and trackable early warning signs and growth indicators identified by Clarity are based on more than 30 years of data gathering.
High costs and liabilities weigh on London’s SMEs
The Clarity return on capital employed (ROCE) findings highlight that the strong overall performance of Greater London’s economy can mask more challenging and uncertain conditions for many of the capital’s SMEs.
From a regional perspective, London might seem like it has the most resilient economy. Yet, the capital’s 6.5% ROCE lags other regions in the UK. This could be a sign of deteriorating performance and potential issues in attracting finance and servicing debt.
London’s SMEs face high, rising and, in many cases, unsustainable costs. These soaring overheads are not only driving down returns but are also leaving a shortfall for investments in productivity, innovation and growth.
West Midlands stands out
At the other end of the performance spectrum for ROCE is the West Midlands. The region’s standout 12.4% ROCE, shown in the latest Clarity findings, reflects its growing presence at the cutting edge of advanced manufacturing in areas ranging from automotive and aerospace to clean energy and green technology.
Wales buffeted by manufacturing slowdown
The profitability of Welsh SMEs trails the rest of the UK, with returns in its critical manufacturing sector lower than any other region. Manufacturing in Wales employs around 150,000 people, with many thousands more working in the extended supply chain, which includes a significant number of SMEs.
The challenges facing Welsh manufacturers and the regional economy as a whole have been heightened by the highest rate of input price inflation of any region in the UK.
East Midlands bounces back
The East Midlands recorded the strongest profitability in our Clarity research. This is all the more remarkable as its average pre-tax profit margin (PTPM) was one of the lowest of any region in the UK just two years ago. Like the West Midlands, the East Midlands’ economy has been buoyed by its growing strength in advanced manufacturing.
The way forward - Clarity in a challenging climate
Further regional SME performance and risk analysis insights are contained in our latest report ‘Clarity in a challenging climate’, powered by our unique data asset, Clarity. Developed by an expert analytics team, Clarity provides analysis of SME’s performance against growth and distress factors to provide professional advisers and business owners with a wealth of insights, to allow them to unlock potential.
Our Clarity report signposts the way forward for regions, indicating short- and longer-term areas of focus to help unlock potential for regional SMEs.
The way forward - Clarity in a challenging climate
Designed to equip lenders, lawyers, accountants and business owners with powerful insights, this data rich report examines SME viability and vulnerability across regions and sectors. To request your copy of the ‘Clarity in a challenging climate’ report, please click below.
