Business activity among UK small and medium-sized enterprises (SMEs) has shown robust expansion throughout the first quarter of the year, as indicated by the NatWest SME PMI Business Activity Index, which recorded a figure of 52.6 in March.

The NatWest index serves as a crucial gauge of the health of the UK SME economy, where a PMI reading above 50.0 signifies growth or expansion, while a reading below 50.0 suggests contraction.

The recovery in overall SME output levels has been propelled by an improvement in order books, with new work witnessing a continuous increase for the fourth consecutive month in March. Among the sectors, the services sector led the way with the fastest upturn in business activity, registering 53.2, closely followed by the manufacturing sector at 51.4. Meanwhile, SME construction output approached stabilisation in March, recording 49.6, marking an improved trend following the stronger declines witnessed in activity during the latter part of last year.

In the latest survey, SMEs reported a notable increase in their average cost burdens, particularly within the service economy, attributed mainly to rising salary payments and transportation costs. However, the overall rate of input price inflation marked its slowest pace since November 2023. Efforts to alleviate margin pressures led to SMEs charging the highest prices since June 2023.

Business activity expectations remained positive in March, with SME confidence holding close to February’s two-year high. According to the NatWest Sustainable Business Tracker, there was a rise in the proportion of SMEs investing in renewable energy plans compared to the same period in 2023.

Notably, UK SMEs displayed a strong inclination towards investing in more energy-efficient business processes over the next 12 months. Presently, 11% of small and medium-sized enterprises have already made such investments, showing a slight increase from the 8% recorded during the same period last year. Furthermore, 18% of SMEs anticipate investing within the next 12 months, while the longer-term outlook is considerably optimistic, with 41% intending to invest within five years.

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Moreover, the survey revealed that over half of UK SMEs are planning to spend on electric vehicle (EV) infrastructure or have already taken steps in that direction. Among the six categories monitored by the survey, the use of EVs or the installation of their charging points recorded the largest proportion of SMEs having made previous investments (18%), with an additional 29% expecting to invest within the next five years.