Small businesses still cautious despite slight improvements in April, survey shows

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Small businesses saw a slight recovery in April but are still cautious on the year ahead, a new business survey says.

The new NatWest UK Small Business PMI survey for May signalled an improvement in the small business sector, though the improvement on the record low recorded in April was still the second lowest performance in the 22-year history of the survey.

The PMI improved from 14.6 to 26.3, where a score of above 50 is needed to indicate growth.

Small companies in manufacturing recorded the slowest drop in output, followed by service providers, while those in the construction sector posted the fastest pace of decline.

SMEs surved in the report highlighted problems re-opening with social distancing measures, as well as difficulties with supply chains and logistics.

Companies also commented on their reliance on the Government’s furloughing scheme, heightening fears that job loss numbers will increase as the support is reduced.

Stephen Blackman, principal economist at NatWest, said: “During crises, surveys signal mood as much as activity. And 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 question is, what happens as these schemes unwind? And here the news is mixed.

“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 and there’s even tentative signs, via VAT reports, that new businesses are starting; though modestly, it must be stressed.

“It’s worth noting that most of what is captured in this survey occurred before further easing in lockdown measures. Directionally, this is just what we hoped to see. It now needs to accelerate.”

In the report, 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%).

Construction companies fared best in the survey, reflecting the earlier return to work in the building sector.


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