The new NatWest UK Small Business PMI® survey has identified a clear improvement in the business environment since April, with the downturn in private sector output moderating from the record drop at the peak of the coronavirus disease (COVID-19) outbreak.
However, small businesses are more cautious about the year ahead outlook than their peers in all three main sectors covered by the new survey, prompting NatWest to unveil a Small Business Taskforce to support its customers through the next phase of recovery.
Signs of a turnaround were highlighted by a rise in the supporting Small Business Activity Index – which monitors output at private sector companies with 1-49 employees in the services, construction and manufacturing sectors – from 14.6 in April to 26.3 in May.
Nonetheless, the index remained below the 50.0 no-change value and signalled the second-fast drop in business activity since the start of the series in 1998. Small manufacturers recorded the slowest drop in output, followed by service providers, while those in the construction sector posted the fastest pace of decline.
Small businesses continued to experience a severe shortfall of new work in May and reported widespread business closures across their supply chains, despite a boost as some parts of the UK economy began to repoen with social distancing measures.
Difficulties sourcing materials, restricted transport capacity and the need to find alternative suppliers all place a particularly strong burden on small business cost in May, especially in the manufacturing and construction sectors.
Employment trends among small businesses have been more resilient than elsewhere in each of the main categories of activity monitored by the survey. However, survey respondent experiencing a slump in revenues overwhelmingly commented on use of the government’s job retention scheme to help keep on staff.
Downturn in service sector business activity eases from April's record
May data highlighted that small service sector companies remained under severe strain, despite a boost in some areas as parts of the economy began to reopen with social distancing measures. At 25.0, the Business Activity Index was well below the 50.0 no-change mark and the second lowest since the start of the survey in 1996.
Around 60% of small UK service providers reported a drop in business activity during May. The proportion recording a fall in output was down from 78% in April, but it exceeded the equivalent figure for large service sector companies in May (49%). On a more positive note, the percentage of small service sector firms signalling activity growth in May (11%) was up from just 6% in April.
Small manufacturers record softer output drop than in April
Latest data indicated that small manufacturers fared better than companies of the same size in the service and construction sectors during May. A number of firms commented on a phased return to work with production schedules adapted for social distancing measures. That said, the index measuring manufacturing output at small businesses remained well below the 50.0 no-change value, with the rate of decline but now exceeding that seen across the sector as a whole.
Around 59% of small manufacturers reported lower production in May, while only 19% signalled an expansion. The proportion signalling a rise in output was up from just 12% in April.
Sharp construction sector downturn continues amid rapid drop in new work
May data pointed to sustained weakness across the construction sector, but a gradual restart of work on site with social distancing measures helped to moderate the overall rate of decline. However, material shortages held back smaller construction firms leading to them showing a faster drop in business activity than larger firms during May, which reversed the pattern seen in the previous month. Survey respondents often cited a lack of new opportunities to tender and project cancellations amid the COVID-19 pandemic.