Signs of a turnaround in business activity has prompted UK firms to feel more optimistic about the outlook for the next few months.
Natwest’s small business activity index shows small steps towards recovery.
The index monitors output at private sector firms with between one and 49 employees in the services, construction and manufacturing industries. It rose from 14.6 in April to 26.3 in May, but remain below the 50 no-change value.
Principal economist Stephen Blackman said: “The slight uptick in May’s Small Business PMI tells us that, at least, the worst should be behind us. As the survey highlights, the furloughing schemes have been instrumental in limiting the scale of job losses across the UK.”
The government’s job retention scheme has helped small businesses remain resilient through the pandemic. But respondents that are experiencing a sharp drop in revenues noted the scheme was helping them keep staff on. Therefore when it is wound down in October it could leave swathes of small businesses in trouble.
“The question is, what happens as these schemes unwind? And here the news is mixed,” Blackman said. “More than a third of small business in services expect a further reduction in activity this year. Yet, fewer firms now anticipate a reduced workforce than they did in April.”
Small firms have already been adversely hit by the pandemic, made clear in the severe shortfall in new work last month. They have faced issues with supply chains, sourcing materials and travel restrictions, meaning small firms have had to source alternative suppliers at a cost.
As a result, they remain cautious as expectations lag behind those reported by larger firms. So, Natwest has launched a “small business taskforce”, alongside the British Chambers of Commerce and other partners, to support its customers through the recovery phase.
The Federation of Small Business (FSB) national chair Mike Cherry said: “We now need to see fresh measures [from the government] that will continue to support small firms as they evolve and adjust to the new norm.”
“On top of the recent much-needed adjustments and extensions to the furlough scheme, cuts to Employer National Insurance Contributions, large scale job market interventions along the lines of the previous Future Jobs Fund, investment in apprenticeships, and retraining programmes will all be crucial to protecting livelihoods and giving young people opportunities through this difficult time.”