As the national lockdown remains across Scotland and the UK, and we approach the one-year anniversary of the first COVID-19 case in Scotland, the story amongst the sectors of the economy continues to emerge.
While industries like accommodation and food services continue to be the hardest hit in the economy, there is some evidence that the current lockdown has not caused a significant decline in cash reserves across Scottish sectors. However, retail, accommodation & food services, construction, and manufacturing have all experienced decreased turnover since December.
Our latest Scottish Business Monitor, published this week in partnership with Addleshaw Goddard, confirmed that more firms are indeed optimistic about their future volume of business and levels of employment. However, more than 1 in 10 businesses in the accommodation and food services sector reported that their survival over the next 6 months was unlikely.
Table 1: Real time indicators dashboard
Source: Scottish Government, BICS, Adzuna Labour Market Stats
Chart 1: Purchasing Manager’s Index, UK, January 2020 – January 2021: The PMI index fell sharply in January; however, the magnitude of the decline has been less severe compared to the first national lockdown in April 2020. In January 2021, the Scottish index fell to 33.3 – the most severe decline out of all UK regions.
Source: IHS Markit
Chart 2: Estimated share of businesses that are currently trading, broken down by industry, Scotland, 15th June 2020 – 14th January 2021: The majority of Scotland’s sectors are proving resilient to the ongoing economic conditions. The accommodation & food services and arts, entertainment, and recreation sectors remain the most affected by business closures throughout most of January.
Source: Scottish Government, BICS
Chart 3: Estimated share of workforce on furlough leave, broken down by industry, Scotland, 1st June 2020 – 10th January 2021: The retail sector has experienced the sharpest increase in furloughing in the last wave – increasing by 8.9-percentage points – as all non-essential shops have been forced to close. Other sectors of the economy have so far only seen modest increases in the share of furloughed employees throughout January.
Source: Scottish Government, BICS
Chart 4: Estimated share of businesses with decreased turnover compared with what is normally expected for this time of year, broken down by industry, Scotland, 1st June 2020 – 24th January 2021: The impact of the second national lockdown on business turnover has become apparent in the most recent BICS wave. Businesses in the retail, accommodation & food services, construction, and manufacturing sectors all saw sharp declines in turnover.
Source: Scottish Government, BICS
Chart 5: Estimated share of businesses with no or less than 3 months of cash reserves, Scotland, 14th December 2020 – 24th January 2020: The construction and accommodation and food services sectors have the highest share of liquidity constrained businesses. Overall, the current lockdown has not caused a significant deterioration in cash reserves in the Scottish economy so far.
Source: IHS Markit
Chart 6: To what extent has your company’s debt burden increased during the period of the pandemic? Q4 2020: Just under half of all responding businesses reported that their debt burden had increased in some capacity during the pandemic. 45% of small businesses (1-10 employees) reported a large increase in their firm’s debt, with 28% of medium firms (11-99 employees) reporting the same.
Source: Scottish Business Monitor
Chart 7: Over the next six months, what do you expect to happen to your volume of business activity? Q4 2020: The outlook for the majority of businesses over the coming months is not positive either, with many expecting their volume of business to fall further over the next 6 months. This result was again particularly prominent in the accommodation and food services sector, with 57% of businesses expecting a decline. Only the construction sector showed signs of optimism across industries.
Source: Scottish Business Monitor
Note on our real-term indicators analysis:
We review newly available data each fortnight and provide a regularly updated snapshot of indicators that can provide information on how the economy and household finances are changing. This allows us to monitor changes in advance of official data on the economy being released and also to capture key trends that will be missed by measures such as GDP. Each fortnight we investigate new sources from known data sources and use publicly available data.
Authors
Ben is an economist at the Fraser of Allander Institute working across a number of projects areas. He has a Masters in Economics from the University of Edinburgh, and a degree in Economics from the University of Strathclyde.
His main areas of focus are economic policy, social care and criminal justice in Scotland. Ben also co-edits the quarter Economic Commentary and has experience in business survey design and dissemination.
Adam is an Economist Fellow at the FAI who works closely with FAI partners and specialises in business analysis. Adam's research typically involves an assessment of business strategies and policies on economic, societal and environmental impacts. Adam also leads the FAI's quarterly Scottish Business Monitor.
Find out more about Adam.
Frantisek Brocek
Frank graduated from the University of Strathclyde in 2019 with a First-class BA (Hons) degree in Economics. He is currently studying on the Scottish Graduate Programme MSc in Economics at the University of Edinburgh.
He has experience from a variety of economic policy institutions including the European Commission in Brussels, the Slovak Central Bank and the Ministry of Finance.