Monthly economic brief: December 2020

Business Turnover

Going into the fourth quarter, many businesses continued to operate below full capacity with risks to business viability varying across sectors. 

Monthly Business Turnover Index^[9]

• The Monthly Business Turnover Index for October showed that most companies in Scotland continued to report that turnover had fallen compared to last year (43). However, the index had risen for six consecutive months indicating business activity is recovering.

• Compared to last year, business turnover remains lower across both the Manufacturing sector (46.6) and to an even greater extent, the Services sector (41.9), despite both continuing to strengthen over the month.
• Within the Services sector, Accommodation and Food Services continued to be the industry with most businesses reporting a decrease in turnover over the year, followed by Culture and Recreation Services.  Furthermore, turnover in both industries weakened over the month.
• Similar to other business activity indicators, the pace of recovery in the turnover index has slowed from the summer months, particularly in the consumer facing service sectors, reflecting the introduction of local level restrictions to counter the increase in coronavirus cases.
• The extent to which business turnover remains below last year continues to emphasise the weak demand and operational challenges that businesses are facing.

(share of businesses with 10+ employees and a presence in Scotland)

• Scottish Government estimates of ONS BICS data show further challenging trading conditions in November and into December, with 45% of the businesses with a Scottish presence reporting that turnover was lower than what they would normally expect for the time of year.  While this has fallen from 56% in the first half of November, the extent of the issue continues to vary notably by sector with four sectors in which more than half of businesses continue to experience lower turnover: Arts, Entertainment & Recreation (79%); Accommodation & Food Services (75%), both of which continued to be impacted significantly by restrictions on consumer activity, and also Administration & Support services (55%) and Transport & Storage (53%).^[10]
• Furthermore, business resilience remains a key factor going forward, with restrictions on activity expected to continue in some form into the new year. The same survey showed that in the first half of December, 28% of firms reported having no, or less than 3-months’ of cash reserves (34% had more than 6-months), while 15.3% reported a moderate risk of insolvency (74.1% reported being at low or no risk).