UK small business recovery stalls as firms adapt to Covid
The recovery among UK small businesses slowed in August as demand for services dropped, according to a new survey, in a worrying sign that the economic rebound is running out of steam.
Natwest, who produced the survey, said there was a “widening gap” between big businesses and smaller firms, the latter of which employ the bulk of the UK population.
The lender’s small business purchasing managers’ index – a gauge of small business health – slipped to 50.6 in August. That was down from a two-year high of 53.3 in July.
A figure above 50 indicates expansion. Therefore August’s reading indicates that activity among the UK’s small businesses only just grew.
“The road to recovery for small businesses continues to be challenging,” said Andrew Harrison, head of business banking at Natwest.
Smaller companies “lag behind their larger competitors,” Harrison said. “We know that small firms are facing different challenges to larger businesses, from adapting to social distancing measures to supply chain issues and liquidity pressures.”
Small businesses in UK services sector suffer
It comes as the UK government prepares to end the furlough scheme, which has supported more than 9m jobs, in October.
Trade unions, business groups, opposition parties and think tanks have all called for support similar to the furlough scheme to continue. Economists warn that a wave of job losses and potentially company failures is coming.
Natwest’s survey showed that small business activity in the massive service sector stagnated in August. Respondents cited a lack of new work and limited ability to meet consumer demand.
Small manufacturing firms fared much better, however, posting solid growth in August.
Stephen Blackman, NatWest Principal Economist, said small firms were hit by a “mix of sector, place and distribution”.
“We know small firms tend to favour services, which have been slower to recover. But larger firms are also more likely to operate in national and even international markets, where places of uneven demand tend to average out.”