SME outlook is polarised in new FSB survey

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Date: 28 July 2020

bicycle mechanic is repairing a bike in the workshop

The latest poll by the Federation of Small Businesses has found a significant divide when it comes to small business confidence.

The FSB Q2 Small Business Index has found that 23% of 1,400 business owners surveyed expect their performance to be "much worse" over the coming quarter compared to the last quarter. However, more than one in ten (13%) expect their prospects to be "much improved".

The key findings show that:

  • 58% of firms surveyed expect their performance to remain stable or worsen over the next three months;
  • 42% expect a relative improvement as lockdown restrictions lift;
  • 75% say that coronavirus is having a negative impact on their confidence levels (down from 88% in Q1);
  • 82% say they are operating below capacity.

The share of small firms that have reduced headcounts over the past three months is at an all-time high (23%), while those recruiting stands at just 4%, an all-time low.

Mike Cherry, FSB national chairman, said: "Given so many small firms are already being forced to reduce headcounts, policymakers will need to keep existing interventions under close and continuous review to ensure they are sufficient. They should also be conscious that tax increases for small businesses and the self-employed would risk stifling any nascent recovery."

Those in the construction and accommodation and food service sectors are among the most confident about a relative uplift in performance next quarter, with 29% and 26% expecting a significant improvement respectively. Among the least confident are those in the wholesale and retail and arts and entertainment sectors, where only 13% and 2% have a positive outlook.

The latest Coronavirus Business Impact Tracker from the British Chambers of Commerce (BCC), in partnership with jobs site Indeed, describes the UK economy as "still in first gear". Its findings show that the steep decline in business conditions seen at the start of the pandemic is levelling off, but firms still face extremely challenging conditions.

On average, businesses said they were at 53% of their full pre-pandemic capacity. Customer demand (54%) and possible future local lockdowns (52%) were cited as the top two obstacles to maintaining day-to-day operations.

With flexible furlough being introduced at the start of July, just 31% of business owners said they had now furloughed staff on a part-time basis, while 56% said they still have staff furloughed full-time. More than one in ten (13%) of respondents said they had made redundancies since the beginning of the crisis, with 33% saying they intended to make further staff cuts over the next three months.

"Our findings demonstrate that the UK's economic restart is still very much in first gear," said BCC director general Adam Marshall. "Businesses are grappling with reduced customer demand, an on-going cash crunch, and the potential for further lockdowns during an uncertain autumn and winter ahead.

"The time has come for the government to take radical steps to slash the tax burden around employment to help companies pay valued staff, rather than the Revenue. A major boost to the Employment Allowance and an increase in the threshold for employers' National Insurance contributions should both be in the chancellor's sights if he wants to help viable companies save jobs as the furlough scheme comes to an end."

Written by Rachel Miller.

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