Many small and medium sized businesses (SMEs) in the UK’s most vulnerable cities could face severe challenges as the effects of the depressed economy and of spending cuts are felt.

This is the warning in a report, Small Business Outlook 2013, which has been published by Centre for Cities and is supported by global insurer Zurich.

It shows that the health of the local market is one of the most important factors in determining the success of SMEs, and reports that two thirds of SMEs in some cities remain reliant on trading with customers in their local market.

Because the effects of the depressed economy and austerity measures will be felt differently in different cities, some SMEs are likely to be more vulnerable to changes in their local market brought on by job losses, welfare cuts and constrained wages than others.

SMEs in Cambridge, Crawley and Reading are likely to be best insulated against further cuts, while SMEs in Hull, Liverpool and Blackpool may feel the effects of their customers spending less money in their local economy far sooner and far stronger.

Alexandra Jones, chief executive of Centre for Cities, said: “Small and medium sized businesses are the lifeblood of the UK’s economy but Small Business Outlook flags that many have been particularly affected by the impact of the recession on their local economies. They will face challenges ahead as further austerity measures have a knock on effect on local demand for their services.

“Government must recognise the importance of local economies to SME performance and resilience and ensure that local partners, including local enterprise partnerships, have a clear role in delivering national business support policies. High quality, evidence-based local growth plans will be critical to helping UK cities navigate the bumpy road of recovery, while support from national organisations such as UKTI (UK Trade & Investment), as well as local partners will be vital to helping SMEs diversify their customer base and even move into exports.”

Richard Coleman, director of SME for Zurich, said: “The SME landscape is in a period of significant change influenced by increasing globalisation and new technological developments among other things. We are also seeing the transformation of the traditional high street and these trends are having an increasing impact on the growth opportunities and risks for local small businesses – from the tradesman to the high-street retailer and the exporting manufacturer.

“Cities have a significant role to play in helping their constituent small businesses capture the evolving opportunities and address the emerging risks; it is important that both local government and local business groups not only assess their current small business base and its comparative strengths, but also understand and plan for the changing shape and challenges of the SME sector on the horizon.

“Doing so will allow cities to provide a healthy backdrop of support for local small businesses, build a resilient local economy and ensure long-term economic growth, diversity and opportunity.”