Monthly economic brief: August 2020

Business Turnover

The closure and scaling down of businesses during lockdown has resulted in significant cashflow challenges for businesses, which remains a key risk as business reopen and adjust to new operating and demand conditions.

Monthly Business Turnover Index^[8]

• The Monthly Business Turnover Index for June showed that most companies in Scotland continue to report that turnover has fallen compared to last year (24.6), though to a lesser extent than in April and May.
• The fall in turnover over the year reflects the impact of the restrictions on activity throughout the month and was evident in both the manufacturing (30) and service (23) sectors.
• Within the services sector, turnover declined across all industries (except for Food Retail) and most prominently in the Accommodation and Food Services industry and the Wholesale & Motor Trades, which were also the only two service sector industries to see turnover weaken at a faster rate compared to May.
• The overall improvement in the business turnover index from May is in keeping with other business indicators signalling an increase in business activity as businesses planned for and restarted operations. However, the widespread falls in business turnover compared to last year continue to emphasise the challenging cashflow position that many businesses are facing.

Figure Description

This chart shows the Net Balance scores of Scottish companies business turnover compared to one year ago in the months March to June 2020.

Cash reserves of business

• The fall in demand and turnover has resulted in businesses using a combination of cash reserves, cost cutting, Government support and loans to accommodate ongoing costs for the business and maintain cashflow.
• Of Scottish businesses that had not permanently stopped trading in the second half of July, 38% of businesses reported having cash reserves to last between zero to six months (UK: 42%), while 38% of Scottish businesses had cash reserves to last more than 6 months (UK: 35%).^[9] 3% of Scottish businesses reported they had no cash reserves (UK: 4%).
• The level of cash reserves remains a critical aspect of business viability as they transition from lockdown or reduced operations and start to rebuild capacity in an environment in which there remains levels of restrictions on activity and demand is returning gradually.
• ONS data for Scottish firms in the second half of July, reported that 57% of businesses currently trading reported a decrease in turnover compared to what is expected for this time of year (UK: 54%), while 13% reported their operating costs exceeded their turnover (UK: 16%).^[10] Furthermore, the Scottish Business Monitor reported that 74% of business in Scotland expect to be operating at below normal levels of capacity over the next six months.^[11]

Figure Description

This chart reports on businesses cash reserves in the period 13 to 26 July in Scotland and the UK as a whole. The businesses could choose from the following options of how long their cash reserves would last: ‘No cash reserves’, ‘less than 1 month’, ‘1 to 3 months’, ‘4 to 6 months’, ‘More than 6 months’, ‘Not sure’.