The number of SMEs in the UK with a positive outlook for the next 12 months has exceeded the number with a negative one for the first time, in the clearest sign yet that parts of the economy are slowly springing to life.
This is according to the latest wave of the Opinium-Cebr Business Distress Tracker. But, despite the marginal improvements, the UK is still in a risky position.
The latest Tracker suggests that more than half a million (544,000) businesses are at a high risk of entering insolvency as a result of Coronavirus-related disruption – up from 510,000 two weeks ago.
The picture varies considerably across different business sectors. Half of SMEs in manufacturing & construction say that current trading conditions are fairly good, compared to just over 25% of service sector firms.
The results put doubt on the notion of a V-shaped recovery, as the average anticipated recovery time rises from only 3 weeks to 31. The pattern observed in recent weeks gives strong evidence that the longer the lockdown persists, the longer the recovery will take.
The most commonly cited reasons for the delay in raising production are reduced demand from customers, and a weakening of business-customer relationships, and reduced access to inputs necessary for production.
Meanwhile, more than 40% of UK SMEs are concerned about a deterioration in the skills and productivity of workers that are on furlough for a long period.
James Endersby, CEO at Opinium said “Although the situation remains extremely challenging for many businesses, the easing of lockdown in recent weeks have led some to anticipate the end of prohibitive restrictions on their operations.
“We are far from being out of the woods yet, but the direction of travel has injected greater positivity into the business community. The number of us going back to work is accelerating and many are seeing the prospects for their business improve.
“The challenge facing us is the disjointed return to normal. Large numbers are facing disruption to demand from their customers and combined with issues further up the supply chain. Even once lockdown measures are removed business leaders still expect months of hard work until levels of production return to normal.”
Pablo Shah, Senior Economist at Cebr said “The gradual easing of restrictions in May has helped some businesses to come out of hibernation – particularly in the manufacturing and construction sectors – while providing a more general boost to sentiment throughout the economy.
“Workforce measures to weather the storm – such as pay cuts and reduced hours – are being reigned in, while less than a third of businesses have a negative outlook for the next 12 months.
“The survey results suggest that many businesses have transitioned from a state of emergency to a state of heightened caution. However, the longer the lockdown lasts, the longer it will take for businesses to rebound.”