Monthly economic brief: October 2020

Business Turnover

Businesses continued to reopen and adjust to new operating and demand conditions going into the third quarter, however many were operating below full capacity and cashflow challenges remained a key risk.

Monthly Business Turnover Index^[10]

• The Monthly Business Turnover Index for August showed that most companies in Scotland continued to report that turnover had fallen compared to last year (34). However, overall, the indicator did continue to strengthen from its low point in April.
• The rise in the turnover index since April, suggests that business activity strengthened between July and August, however, most companies continue to report notably lower sales than last year and there were variations across sectors.
• Compared to last year, business turnover remains lower across both Manufacturing (36) and Services (34) sectors, and while turnover in the Services sector continue to strengthen over the month, turnover in the Manufacturing sector remained broadly flat. 
• 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.
• Compared to July, the index for most industry sectors strengthened in August, particularly for Accommodation & Food services and non-food (other) retail, however Wholesale & Motor trades fell over the month.
• The improvements in business turnover across most sectors in August reflect the further reopening of the economy over that period.  However, the widespread falls in business turnover compared to last year continue to emphasise the challenging cashflow position that many businesses are facing.
• The Scottish Government estimates of ONS BICS data show further challenging trading conditions in September and October, with 51.3% of the businesses with a Scottish presence reporting that turnover was lower than what they would normally expect for the time of year, up from 46.7% in the previous wave.  Within this, there were four industries where more than half of the businesses continue to experience lower turnover: Accommodation & Food Services (73.1%) and Arts, Entertainment & Recreation (71.4%), both of which continued to be impacted significantly by restrictions on consumer activity, and also Transport & Storage (56.1%) and Administration & Support services (59.0%).^[11]
• Cashflow and cash reserves remain a critical aspect of business viability as firms rebuild capacity in an environment in which there remains levels of restrictions on activity and demand is subdued.  It presents ongoing risks to business investment also, which on the back of a downward trend over 2019, fell by 29.6% in Q2 2020 and by 38.5% over the year to Q2.^[12]