Small private sector firms in the UK saw a slight easing of strains in May as the downturn in output moderated from a dearth of activity in April.
The newly-launched UK Small Business PMI from Royal Bank of Scotland, which focuses on firms employing up to 49 people, picked up some signs last month that the worst may now be over. However, small businesses remain more cautious than their larger peers about the year ahead.
Activity across all sectors registered at 26.3, a substantial improvement on April’s reading of 14.6. However, this was still well below the 50.0 mark that divides contraction from expansion, and was the second-fastest drop since equivalent records began in 1998.
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Stephen Blackman, principal economist at Royal Bank of Scotland, said the survey highlighted the key role that furloughing has played in limiting job losses. But this Government support is set to wind down between August and October, leaving further questions on the horizon.
“The question is, what happens as these schemes unwind? And here the news is mixed,” he said.
“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.”
About 60% of small UK service providers reported a drop in business activity during May. That was down from 70% in April, but exceeded May’s 49% reading for large service sector companies.
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Small manufacturers fared better than companies of the same size in the services and construction sectors with an activity reading of 31.6. This compared to 25.9 in the service sector and 20.3 in construction.
Where work has been able to gradually restart, material shortages have held back smaller construction firms, leading them to show a faster drop in business activity during May than their larger counterparts.
Contrary to elsewhere, the degree of pessimism among small construction companies on the outlook for the year ahead worsened since April. Concerns centred on project cancellations, uncertain cash flow projections and the potential for greater competition with larger firms if tender opportunities diminish.
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