UK SMEs still cautious despite slight improvements in economy

UK SMEs saw a slight recovery in April but are still cautious on the year ahead, a new business survey from Natwest illustrates.

The new NatWest UK SME 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. Some improvement but many SMEs not even cost to usual trading figures or expecting growth anytime soon.

SMEs 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 a variety of problems especially adapting to the new normal and trying to re-opening with social distancing measures in place along with managing staff and increased costs as staff come off furlough. Other issues including difficulties with supply chains and logistics as many critical suppliers aren't back up to speed.

UK SMEs 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.”

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