Remarkably, UK small business growth forecasts remain unchanged on the previous two quarters, despite the UK starting 2021 in an unprecedented third national lockdown.
With the latest lockdown expected to cost the UK economy almost £400million per day, and distressed sectors such as hospitality and retail in crisis, the new quarterly figures from Hitachi Capital Business Finance reveal that 26% of small business owners predict growth in the three-months to 31 March – just a 1% change on Q3 2020 and Q4 2021 respectively. Following a crash in small business growth forecasts during the first lockdown in March 2020 – falling from 39% to 14% overnight – the proportion of small business owners predicting growth doubled the following quarter and has remained unchanged ever since.
Whilst directors in the finance/accounting (40%), media/marketing (36%) and IT/telecoms (36%) sectors drive UK growth predictions for the three-month period to 31 March, the Hitachi Capital data also revealed areas of concern. Nationally, 29% of small businesses in the retail sector feared contraction or collapse in the next three months, and the hospitality/leisure sector emerged as deep in crisis – with only 9% predicting any form of growth over the next three months and a record 53% predicting contraction or collapse.
Whilst fears of UK double-dip recession have been linked to manufacturing output, here the position was mixed. The Hitachi capital data revealed that 32% of manufacturing small businesses predicted growth for the three months to 31 March, whilst 29% predicted contraction or collapse.
Home-working has worked, restructuring has not
The research presents mixed results from those small businesses that have tried to adapt to the lockdown era. On the plus side, those small businesses that transitioned to home working were more likely than the national average to predict growth (31% Vs. 26%), but for businesses that had tried – or been forced – to restructure and repurpose the picture was less positive. Here only 15% of ventures predicted growth in the next three months, whilst a concerning 50% predicted contraction or even collapse.
Brexit begins to bite
The Hitachi Capital Business Barometer has tracked small business growth forecasts for 26 consecutive quarters, each time polling a representative sample of more than 1,000 small business owners. The latest January 2021 figures suggest that Brexit is quietly but decisively also having a direct bearing on short-term growth plans. Small business for whom the EU is their biggest market were most likely to predict contraction or collapse (31%), whereas businesses that had a broad-based international reach beyond the UK were most likely to predict growth in the next three months (36%). For those harbouring beliefs that Britain can stand alone as an island, the Hitachi findings suggest otherwise; small businesses that rely purely on the domestic market for sales were more likely to predict contraction or collapse than growth (28% versus 22%).
Joanna Morris, Head of Insight at Hitachi Capital Business Finance comments:
“We live in unprecedented times and the surprises from our latest quarterly study reflect this. Overall, it is hugely positive that growth outlook for the small business sector as a community remains strong. Our study showed how dramatically confidence fell with the first lockdown in March 2020, and whilst growth forecasts have not matched pre-pandemic levels, the consistency of more than one in four predicting growth over each of the last three quarters is a firm and positive building block for the British economy.”
“If we dig deeper into the detail, there are areas of concern. When it comes to growth plans, Scottish and Welsh small businesses are lagging behind their English counterparts. Whilst home-working has helped businesses to plan and grow, attempts to reinvent businesses has seemingly been more problematic. And there is no question that Brexit is impacting the many small businesses that rely on exports – and at the very time when the UK market is in lockdown. These are challenges that need to be tackled to ensure the UK small business sector does not become polarised between those do very well and those facing closure. At Hitachi Capital Business Finance we are working hard to help small businesses to adapt and invest in growth and we hope the forthcoming Budget will help give a level playing field to help all small businesses to reforecast and rebuild. After all, the nation’s economic recovery from Covid will depend on the small business sector.”
Small business growth predictions for the three months ahead
A comparison over the last three quarters (column percentages)
The research was conducted by YouGov among a representative sample of 1,464 small business decision makers on 11th-20th January 2021 spanning industry sectors.