The latest NatWest UK Small Business PMI® survey shows a decline in small firms’ business activity for the second month running in November, as overall demand conditions remained weak. However, news of a vaccine boosted small business confidence for the future to a ten-month high.
The All-Sector Small Business Activity Index registered at 47.4 in November, up slightly from 47.0 in October but still below the 50.0 no-change mark. Small business activity still continued to lag behind larger businesses with the equivalent UK-wide index registering at 49.5 in November.
The downturn was contained to small service providers as the consumer facing sector saw business activity fall at an accelerated pace due to the national lockdown in England and strict measures elsewhere across the UK. Small construction and manufacturing firms, however, saw a small but notable turnaround to muted growth.
Despite the ongoing downturn in overall small business activity, news of a vaccine and hopes of an end to lockdown measures boosted confidence at small firms. Sentiment towards future activity over the next year was the highest it’s been since January as small firms cited hope that the UK economy will start to recover more quickly in light of the vaccine.
Andrew Harrison, Head of Business Banking at NatWest, said: “Small businesses across the UK, particularly those in consumer facing sectors, are having to continually navigate uncertain terrain with restrictions and lockdowns. Our latest PMI data shows a continuing decline in activity for small firms in November, but it’s encouraging to see that news of the vaccine has boosted business outlook in the longer term.
“We continue to see our small business customers demonstrate their resilience through the pandemic by being agile and pivoting business models quickly. We’ll be there to support them as they face into the rest of winter period, providing access to financial support, tools and advice that can help them plan for what’s ahead.”
November data showed that business activity in the service sector fell at an accelerated pace, with the national lockdown in England and strict restrictions elsewhere across the UK taking a severe toll on consumer-facing firms.
Small construction companies saw a return to output growth, with demand conditions improving for the first time since July amid reports of improved client confidence and a surge in new projects. The overall increase in activity was only slight, however.
The manufacturing sector saw a notable turnaround, with factory production at small enterprises rising at the quickest pace since August following a modest decline in October. Growth was aided by a strong upturn in order book volumes, with panellists reporting higher sales both domestically and abroad.
Small firms continued to trim workforce numbers at a slightly accelerated pace in response to muted demand and falling backlogs in November. Service providers registered the sharpest fall in employment. Meanwhile, lockdown measures around the world and delays at UK ports continued to stress supply chains in November, with small firms reporting a sharp lengthening of vendor lead times. Supplier shortages and logistics issues pushed input prices up again, which then created further pressure on operating margins among small enterprises.
Stephen Blackman, NatWest Principal Economist, commented: “As anticipated, October’s small business PMI proved a reliable bell-weather as the index for all firms followed its lead into contraction territory last month. So, it’s welcome news that the small business PMI for November (47.4) was actually a tad higher than October’s (47). Again, it’s small businesses operating in the service sector that bear the brunt of weakness. In contrast, activity in construction and particularly manufacturing returned to positive territory.
“The vaccine breakthrough provides what seems to be the only real winter light for the UK’s struggling small businesses, particularly for the consumer-facing sectors, such as hospitality and leisure, that remain vulnerable. Overall, small businesses will continue to face multiple challenges until at least early 2021 and even with the fairest of headwinds it will be some time before a semblance of what once passed for normality is restored.”
Radoslav Kadiyski, Company Director at SBI Group International, said: “For SBI Group, November wasn’t that different from October. Despite the lockdown, the business has managed to sustain a good level of new incoming orders with our whole UK team currently shifting from office based to home based working. Thanks to our hardworking staff and advanced software we have managed to maintain good level of productivity and customer satisfaction. It is difficult for most businesses in these challenging times so it would be a lie to say everything is going smoothly and as normal as possible. However, we always follow a few basic principles in our relationships with our customers and partners – openness, flexibility and correctness. This culture has helped us resolve any issues that have occurred and build even stronger relationships."
Also published today, the latest Regional PMI® data from NatWest pointed to more challenging business conditions across most parts of the UK in November, amid restrictions on activity imposed to limit the spread of coronavirus. Recent news on the development of vaccines drove a broad-based improvement in firms' expectations for business activity over the coming year.
Just five of the 12 monitored UK regions recorded higher business activity in November, the lowest number since June. The strongest-performing area was the South East (index at 52.3), though even here growth slowed sharply to the weakest for five months. At the other end of the scale, Northern Ireland* (45.6) saw the steepest drop-in business activity, followed by Wales (46.6). The latter, like Scotland (47.3), did however register a slower rate of contraction than in October.