The only constant in life is change is an old adage that has always applied to small businesses, who have to deal with external factors they often have limited capacity to influence. This seems particularly appropriate as we publish our small business data for November and as 2021 approaches.

After a year with shifting trading restrictions, changing government support packages and multiple virus waves, we aren’t through the worst of it yet. With 2021 just around the corner, small businesses are going to be faced with the impacts of ongoing winter trading restrictions, as the pandemic continues, and a new trade relationship with Europe. 

Rebuilding the economy amid ongoing restrictions…

The latest Xero Small Business Insights (XSBI) data for November shows small businesses are entering 2021 facing challenging conditions. Small business revenue fell 7.9% in the year to November as England and most of Scotland spent much of the month under strict restrictions. We are yet to see positive annual revenue growth since the pandemic started.

A broader measure of the overall economy, GDP, shows that at the end of September the whole UK economy was 9.7% smaller than it was at the end of 2019.

Small business jobs continue to struggle to recover and in November were still 4.2% lower than pre-COVID levels. Self-employed business owners have been particularly hard hit by this pandemic with an estimated 1.8 million ineligible for the self-employed scheme (compared to 2.6 million that did use the scheme). 

The OECD is not expecting 2021 to show a strong rebound. UK GDP is forecast to grow 4.2% in 2021, after an expected shrinking of 11.2% in 2020. This forecast was made in an environment with varying levels of restrictions in place across the country and likely to be, in some form, until the spring. 

.... but with vaccine in sight  

There is some positive news for small businesses as the roll-out of the national COVID-19 vaccination programme started in mid-December. The early start of the roll-out in the UK increases the likelihood of economic data surprising on the upside. But the vaccine programme will take some months to impact health and economic decisions and small businesses still need to navigate winter trading with ongoing restrictions of some form likely to be in place.   

Deal or no deal, things will be different with Europe

The year will begin with a new trading relationship with Europe. This could be under a negotiated trade agreement with the European Union (EU) or it could be under World Trade Organisation (WTO) rules. Either way it will be different to the conditions previously enjoyed by UK small businesses in their trade with the EU bloc. 

The November Economic and Fiscal Outlook report from the Office of Budget Responsibility estimated that if the UK could secure a 'typical' trade-deal with the EU this would reduce long-term UK output by 4%. Leaving under WTO-terms would create greater immediate disruption to trade and higher tariffs for goods going between the UK and Europe. This is forecast to immediately reduce UK GDP by an additional 2% in 2021, as well as deliver lower economic growth prospects in future years.

Small businesses have very little influence over trade negotiations and will have to take whatever deal is, or isn't, negotiated. This will have the biggest impact on the estimated 23% of small businesses that are in a supply-chain that trades with the EU. The most heavily impacted sectors are expected to be trade-intensive sectors such as manufacturing, agriculture, mining and financial services. 

There will also be secondary flow-on impacts across all UK small businesses as consumers face higher prices for goods from the EU, leaving people with less capacity to spend in small businesses in general.   

Helping small business  

Our Roadmap to Recovery states that “the recovery starts now” because then, as we approached the end of the first lockdown, firms could once again start to bounce back. Since then, with further restrictions, more firms have gone into deep freeze or shut their doors for the last time.

The UK economy is at the foot of a high mountain.The Chancellor has said that we are only at the start of the economic emergency.  We need to be looking at what needs to be done to help small firms kick start the whole economy. We need to make it even easier to start businesses, and for them to grow.  help small businesses through the early months of 2021, by providing up to date information at government assistance packages and what the new trade relationship means post-January 1. 

But you can also help. Make sure you are supporting your local small businesses, especially those facing on-going trading restrictions. It's the perfect excuse to enjoy a take-away or treat yourself to something new.   

Get further guidance on our Brexit Hub here

To learn more about our XSBI November metrics link here