Small firms report gradual turnaround in fortunes

The second edition of the NatWest UK Small Business PMI report, found a sustained rebound in business conditions in June from the record low seen during April, driven by the phased restart of the UK economy as lockdown measures ease.

At 42.5 in June, the headline All-Sector Small Business Activity Index – which monitors output at private sector companies with one to 49 employees – picked up from 26.3 in May and was further above the low seen in April (14.6).

Despite signs of a turnaround in business activity, the latest data highlighted that the rebound has been more gradual among small enterprises.

The equivalent All-Sector Business Activity Index for large UK companies was 51.3 in June. A gap in performance relative to small firms was seen both in terms of current business activity and growth expectations for the next 12 months, with the shortfall focused on the service economy.

Andrew Harrison, the head of business banking at NatWest, said: “This month’s Small Business PMI survey further signals the need for targeted support to SMEs as smaller enterprises saw a more gradual rebound in business activity than that of their larger competitors. At NatWest, we have supported UK SMEs from the onset of the crisis with £6.5 billion approved under the Bounce Back Loan scheme for our smallest customers.

“We will always go further to help our customers ultimately thrive, which is why we are developing the right tools and advice, from financial health checks to solutions to forecast cashflow, to support SMEs as our economy starts to reopen.”

Small service providers faced particularly acute difficulties as parts of the economy reopened in June.

Around 41 per cent reported a drop in activity, while 23 per cent reported an expansion. This was an improvement on the situation seen in May, but it lagged behind the trend signalled by larger firms as many small enterprises remained only in the early stages of recovery.

Service sector companies commented on the challenge of adapting business facilities to meet social distancing needs and difficulties judging near-term workloads. Those in the travel, leisure and entertainment categories again reported widespread business closures.

Manufacturing had a relatively encouraging month in June, as did construction, despite severe supply chain disruption since the COVID-19 pandemic, according to the study.

Small firms in these sectors saw sharp rises in input costs. Manufacturers mainly reported higher prices due to exchange rate depreciation, while construction firms noted constrained availability of materials as sites reopened.

Small firms indicated that persistently low workloads and fragile confidence meant that employment trends were highly subdued in June. There were some reports citing a return of essential employees from furlough, but the overall trend was a drop in staffing numbers for the fourth month in a row.

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