The proportion of UK small businesses predicting growth has plummeted from 39% to just 14% in the past three months, according to new research.
The latest quarterly tracking study of small business outlook by Hitachi Capital Business Finance has found that 31% of business owners are scaling back their businesses and 30% say they will struggle to survive between now and the end of June.
Since the study began in 2015, the proportion of small businesses predicting growth for the next three months has consistently stood at 34%-39% over the past seven consecutive quarters. The dramatic drop in confidence reveals the scale of the impact that the COVID-19 pandemic has had on small businesses in the UK.
The sectors where small business owners most fear collapse are hospitality and leisure (50%), retail (40%) and transport/distribution (37%). However, for the first time every sector recorded more business leaders predicting contraction or collapse than growth for the next three months.
Regionally, small firms in Wales (73%) and Scotland (69%) are most likely to predict contraction or a struggle to survive. Conversely, small businesses in London are the most likely in the UK to predict some form of growth (19%).
Other key findings include:
- 1% of businesses have already closed permanently;
- 32% of small businesses have temporarily closed;
- 34% have adjusted to a home working regime;
- 12% have transitioned to become online businesses;
- 4% have diversified their services to stay afloat;
- 13% reported no change to their trading status.
By sector, small businesses in hospitality (73%) and construction (47%) are most likely to have temporarily closed and retail is the sector where small businesses are most likely to have gone online (24%). IT (53%), media (51%) and legal (50%) are the sectors where home working has been most widely adopted.
The data also reveals that the digital status of a business before the pandemic has a direct bearing on its growth prospects for the period to the end of June. Small businesses that were largely online at the start of the year are most likely to predict growth for the three-month period (28% compared to just 7% of offline businesses).
Enterprises that were not online are more likely to fear contraction or collapse (68% compared to 45% of their online counterparts). Offline businesses are also more than twice as likely than online businesses to have temporarily closed (37% to 16%).
Gavin Wraith-Carter, managing director at Hitachi Capital Business Finance, said: "Small business outlook in recent years has at times defied gravity. Through the uncertain periods of the Brexit era, the Scottish Referendum and various UK general elections, our study has shown small business outlook to be stoic and positive. The current climate though has brought a sudden and seismic shift in confidence and outlook.
"Whilst we expected to see a big fall in confidence for this quarter, the true test will be if and how it recovers during the summer months. The fact that only 1% of small businesses have permanently closed their doors suggests the majority will bounce back. It is going to be a different world though … We predict the digital economy will be bigger for the small business sector and business owners will have to diversify and adapt."
Written by Rachel Miller.