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GDP figures do not reflect the real health of the economy

Here at Bibby Financial Services we maintain a keen interest in gross domestic product (GDP) figures, but we, along with our clients don’t believe that the figures represent a true picture of the business environment.

GDP figures are the Governments preferred figures for assessing the state of the economy. Financial institutions and analysts also rely on GDP figures to interpret the economic situation in the UK at any one time. We’ve found that many small and medium size enterprise (SME) owners believe the figures don’t represent the reality they face on a day to day basis.

Analysis on a local level

We carried out a survey of 1,000 SMEs and found that only 34 percent of business owners would describe the GDP figures as a relevant measure of the health of the economy.

While larger businesses and financial institutions wait eagerly for the GDP figures, smaller business owners look for indications of economic health at a more local level, and they also look to their own sectors for indications of trading conditions.

Region and sector are more relevant

While SME owners don’t doubt that GDP figures have a use as an overall indicator, a more regional level view would be more valuable to their businesses. The Office for National Statistics does publish the lesser known Gross Value Added data (GVA) figures, these measure regional output but are only published annually and relate to the previous year.

SME owners agree that figures reporting on regions and individual sectors would be a more useful performance measure. If data like this was more readily available it would allow businesses to make more informed decisions.

Macro and micro-economic view

Edward Winterton, Commercial Director at Bibby Financial Services, said: “For many of our business customers, an indicator of activity in their region or sector is more relevant than the broad, macro-economic view. GDP undoubtedly has its place as an indicator but this research suggests that businesses in the UK would value analysis on a more local level.”

“For businesses, understanding regional economic performance is likely to be more useful in a practical sense. Using a regional measure – like GVA – alongside GDP on a quarterly basis would offer a more holistic, macro and micro-economic view, which would reflect local business environments more accurately”, Winterton added.

The engine room of the economy 

Here on the Bibby Blog we’ll continue to report on the latest findings from our customers and small businesses in the engine room of the UK economy.

With over 7,000 customers using our services successfully, we want to continue helping UK businesses realise their growth ambitions and prosper using invoice financing as part of their business armoury.

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