Percentage of UK small businesses contracting hits record low

With the end of social restrictions and Government advice to work from home, new research from Hitachi Capital Business Finance reveals that the percentage of small businesses predicting they will contract or scale down has hit its lowest level since the pandemic struck the UK – and there are now signs of bullish recovery from troubled sectors such as hospitality, leisure and retail for the summer months.

In April 2020, when the country was in its first lockdown, 31% of small business owners predicted their enterprise would contract or scale back in the next three months, with 29% fearing collapse. By January 2021, this had levelled off, with 14% predicting contraction and 13% collapse.

Now, with news of restrictions falling away, and with two-thirds of the country fully vaccinated, fears of negative growth have fallen to their lowest level in two years – with just 8% predicting contraction in the next three months and 8% fearing collapse.

Hitachi Capital’s quarterly Business Barometer reveals that an increase in the percentage of small businesses predicting either growth or stability this year has resulted in a decline in the percentage fearing contraction or collapse. Compared to this time last year, the percentage of small businesses predicting contraction has fallen from 19% to 8%.

Read more: This "Office of the Future" is equipped to operate during a pandemic

The research also suggests that some of the sectors that really struggled during successive lockdowns are now bouncing back for the summer months. 

In the hospitality and leisure sector, the percentage of small businesses predicting growth has more than doubled, compared to this time last year (rising from 16% to 35%) – and it has risen steeply in recent months as restrictions have eased (from 9% in January to 28% in April and now at 35%). 

The retail sector has seen a similar rebound, the percentage of enterprises predicting growth rising from 27% to 44% since July 2020 – and rising by a third in the last three months (from 33% to 44%).

The percentage of small businesses predicting growth also rose for the third successive quarter in the transportation and distribution sector – although agriculture saw a sharp fall from 22% to 15% in the last three months, perhaps a consequence of widely-discussed seasonal labour shortages.

Read more: Which UK industries were most affected by the pandemic?

Whilst small businesses in London were most likely to predict growth for the next three months (42%), the Hitachi Capital research suggests that resurgent business confidence is remarkably even across English regions, with virtually all regions recording 35%-42% of business owners predicting growth.

Small businesses in Scotland and Wales were less likely than their English counterparts to predict growth (29% and 21% respectively), although the proportion predicting growth had risen over the last 12-months.

Joanna Morris, Head of Insight at Hitachi Capital Business Finance said: "England’s run in Euro 2020, together with confirmation that Covid restrictions will end are ushering in a new era of confidence and hope for people across the UK, after a prolonged period of anxiety and fear.

"This summer optimism plays out in our latest piece of quarterly tracking research. Nationally, there is a solid basis to believe that the resurgent confidence we saw last quarter will be sustained – and, by sector, there is really welcome news for small business sectors that have had a torrid time during the lockdowns."

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