The Barometer revealed that 51% of all SMEs across the UK and Nordics are optimistic about the economic outlook, down from 68% last summer with UK SMEs the least positive with 40% expecting the economic climate to worsen.

Despite concerns over the economy 62% of all SMEs expect their turnover to increase during the next year and 53% expect profits to improve. Soaring cost inflation is the biggest day-to-day challenge facing the SME community alongside serious recruitment problems.

The Barometer found that confidence in the economy has fallen 17% since 2021, nevertheless, 62% of SMEs expect their turnover to increase. At the same time, the barometer revealed that cost inflation is the biggest day-to-day challenge facing SMEs.

Azet’s barometer also indicated that two-thirds (64%) of SMEs are unable to recruit people with the right skills. A total of 61% of SMEs say digitalisation is key to business efficiency, while 45% of SMEs are not resourced for Environmental, Social and Governance (ESG) issues.

At the same time, 71% of SMEs revealed to Azets that they are not reducing their carbon footprint. Discussing cybersecurity, 16% of UK SMEs have experienced a cyber-attack or serious data breach.

Over half of all SMEs (54%) say they will increase digitalisation in the year ahead, with cyber-security, data analytics, remote working, e-commerce, and process automation ranking as top priorities. Cyber-security is of particular importance with 16% of UK SMEs experiencing a cyber-attack or serious data breach.

Covid, Cost inflation, employee wellbeing and recruitment were also referenced as key challenges, with almost two-thirds (64%) of all SMEs reporting problems recruiting staff with the right skills.

Addressing these challenges could have reduced capacity for focus on ESG issues, with 71% of SMEs in the UK and Nordics not currently focused on reducing carbon emissions and 85% not currently measuring the carbon footprint of their business.

Peter Gallanagh, regional CEO for Azets in Scotland, said: “The Covid crisis has been particularly tough on SMEs, not only because they are more prevalent in the worst-hit sectors but also because they have fewer buffers – including access to liquidity – than bigger organisations. It is therefore no surprise optimism around the economic outlook has reduced, impacted by the potential for new Covid variants and the global cost of living crisis.

“The impact on the global economy and the SME sector will be immense when we start to analyse the effect of sanctions, price fluctuations on commodities and disruption to the global supply chain.

“Despite this new uncertainty, SMEs remain committed to pivoting their business models and embracing digitalisation as the biggest opportunities to fuel growth. It is this flexibility and agility that will be key for SMEs as they continue to build their resilience and pursue their growth plans.”