UK small firms rebound with easing of constrictions in June

Small private sector businesses in the UK experienced a slight easing of strains in June as the downturn in output moderated from a lack of activity in April.

The NatWest UK Small Business PMI survey, which focuses on companies employing between one and 49 people, signalled a sustained rebound in the sector due to the easing of lockdown measures.

The monthly All-Sector Small Business Activity Index monitors the progress and challenges faced by small enterprises in the manufacturing, construction and services sectors as the UK economy slowly restarts.

PMI improved from 26.3 in May to 42.5 in June, where a score above 50 is needed to indicate growth, it was at a record-low of 14.6 in April.

Activity across all sectors, which looks at large companies in the UK registered at 51.3 in June, with a gap in performance relative to small firms in terms of activity and growth for the 12 months ahead, particularly in the services sector.

READ MORE: UK inflation rose in June as businesses emerged from lockdown

More than a third of small service providers (41%) reported a drop in business activity while 23% signalled an expansion. This was an improvement on May but lags behind the trend seen in larger firms as smaller companies are in the early stages of recovery.

Small manufacturing companies saw a strong rebound, with the business activity index rising from 31.6 in May to 49.8 in June. Manufacturing firms said a boost in production following a slow return to work and activity from other sectors like construction, supported customer demand.

The easing of lockdown in June helped boost business activity in sections of the services sector, where PMI rose to 40.3 in June up from 25.9 in May, which was the highest reading since the downturn began in March.

While the headline figure showed a steady progress for service providers after April's record low, it fell short of the equivalent reading for the sector as a whole, which was 47.1 in June.

Andrew Harrison, head of business banking at NatWest, said: “This month’s Small Business PMI survey further signals the need for targeted support to SMEs as smaller enterprises saw a more gradual rebound in business activity than that of their larger competitors.”

READ MORE: Coronavirus: UK government to end ‘work from home’ guidance

Small enterprises in the services sector noted a knock-on impact from clients spending less due to the coronavirus pandemic, while travel and leisure firms struggled with ongoing closures and a severe constraint in business in June.

Where work has been able to gradually restart, material shortages and supply chain disruption due to COVID-19 have held back smaller construction firms, leading them to register a index reading of 49.5 in June up from 20.3 in May, but below (55.3) the total industry index.

Stephen Blackman, NatWest principal economist, said: “Small businesses across the UK have taken an important stride along the long road to recovery. The leap from 26.3 in May to 42.5 gives hope that the disappointing 1.8% increase in GDP in May has indeed accelerated.”

He added: “Manufacturing and construction continue to lead the way, with close to 100% of firms back in business. But a sense of sobriety is needed. Over one in five firms (21.2%) have suffered a fall in output in excess of 50%, albeit this is a slight improvement from May.

“In short, direction matters, and UK small businesses are slowly but surely recovering. But the path will be choppy and uneven. Companies remain understandably cautious. We’ve moved to a new world quickly and firms are having to learn and adapt at an astonishing pace.”