A new survey has revealed that businesses across the country feel worryingly downbeat about their prospects – and that was before a third national lockdown was announced.
The British Chambers of Commerce Quarterly Economic Survey Q4 2020 revealed business conditions remain weak and show no signs of improvement for the vast majority of firms.
The study, the UK’s largest independent survey of business sentiment and a leading indicator of UK GDP growth, found business conditions were weakened in the fourth quarter as the second lockdown squeezed activity.
The bellwether survey of 6,203 firms, employing nearly a million people across the UK, revealed there was no fundamental improvement in the key indicators in Q4 and they remain well below pre-crisis levels. Ninety five per cent of respondents were SMEs.
Following the sharpest decline in the history of the QES in Q2 2020, all the key indicators in Q4 remained substantially worse than pre-pandemic levels and 79% of hotels and catering firms reported a decrease in domestic sales in Q4, worsening from 66% in Q3.
Cash flow, a key indicator of business health, continued to deteriorate for 43% of firms overall. For hotels and catering firms, 77% reported a decrease.
The survey took place during the second lockdowns in England and Northern Ireland, and amid tougher restrictions in Scotland and Wales.
Continued uncertainty around further lockdowns and restrictions, as well as the many unanswered questions on Brexit, caused businesses considerable distress, with some saying they are worried about the long-term viability of their ventures.
Smaller firms and independent retailers reported the most pessimistic sentiment, many stating that changes in restrictions, and the introduction of the second lockdown exacerbated cash-flow problems and left them with redundant stock.
Some businesses not forced to close by the lockdown and restrictions were also feeling the effects of the cash-flow crisis further up the supply chain, with marketing budgets slashed or diverted to Covid-related activity.
Overall, indicators remained weak in Q4, with only moderate improvement compared to Q3 and still well below the pre-Covid 19 trend.
Nearly half of firms (43%) reported decreases in domestic sales, broadly unchanged from 46% in Q3, while 26% of firms reported an increase in domestic sales.
In addition, 45% of firms reported a decrease in domestic orders, while 33% report no change, and just 22% reported an increase.
Meanwhile, 38% of firms reported decreases in export sales, down slightly from 45% in Q3 but still substantially worse than pre-pandemic levels, where only around 20% of firms reported a decrease. However, nearly a quarter (22%) of firms reported increases in export sales, up from 16% in Q3 .
Business to consumer (B2C) firms saw the largest falls in domestic sales in the quarter. Over three quarters (79%) of respondents in the hospitality and catering sectors reported decreases, compared to 66% in Q3 and is moving back toward Q2 levels (94%), underlining the impact that lockdowns and forced closures have had on demand.
And the survey revealed that even sectors which have continued their operations through the pandemic, and/or shifted their operating models to remote working, also had a higher proportion of firms reporting decreased sales.
For instance, 53% of transport and distribution firms, and 44% of marketing/media firms reported decreases in sales, well above pre-pandemic levels of 29% and 23% reporting decreases in Q1 2020, respectively.
In the manufacturing sector, the balance of firms reporting increased domestic sales increased to -9% in Q4 2020, up from -15% in Q3 2020. The balance of firms reporting increased export sales increased to -8% from -26% in Q3.
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In the services sector generally, the balance of firms reporting increased domestic sales increased to -24% in Q4 2020, up from -25% in Q3. The balance of firms reporting increased export sales increased to -22% in Q4 from -31% in Q3
As a percentage balance, the manufacturing sector is seeing a faster rate of improvement in domestic and export sales, though both sectors’ indicators remain in “negative territory”, meaning that more firms have reported a decrease in sales than an increase.
Suren Thiru, head of economics at the British Chambers of Commerce (BCC), said: “These results indicate that economic activity was strikingly downbeat in the final quarter of 2020 as the re-introduction of tighter coronavirus restrictions weighed heavily on the key drivers of growth.
“The services sector endured a particularly difficult quarter, with consumer-facing businesses most severely exposed to the renewed restrictions. Although manufacturing firms had a moderately better end to 2020, this is more likely to reflect a temporary boost from Brexit stockpiling rather than evidence of a recovery in the sector. The persistent weakness in investment intentions is a particular concern, as it limits the UK’s productivity and growth potential.
“Though the vaccine rollout provides real optimism, a new national lockdown means that a significant double-dip recession in the first quarter of this year is looking increasingly likely.”
BCC director general Dr Adam Marshall said: “Our findings demonstrate that businesses across the UK face a difficult and uncertain year ahead in 2021. The announcement of another major lockdown across all four nations of the UK will compound the gloom for many.
“As we start 2021, governments across the UK should be pulling out all the stops to ensure support for businesses is commensurate with the restrictions in place.
“Both the pandemic and government restrictions continue to hit firms hard, and many are grappling with a difficult period of adjustment to new trading conditions following the end of the Brexit transition period.
“The current drip-feed approach to business support measures is too short term and leaves businesses unable to plan.
“Ministers must set out, now, what additional steps they will take to underpin business cash flow and help viable firms preserve livelihoods until a full reopening of the economy is possible. They should be boosting confidence by extending tax holidays and key support schemes that are due to expire over the coming weeks.
“As we look to the future, our findings demonstrate that big investment incentives are also needed. Prosperity and success depend on businesses, both domestic and international, having the confidence to invest here in the UK for the long term.
“For business, the pandemic doesn’t end simply because vaccines are starting to be delivered. Brexit isn’t ‘done’, either. The sooner the Prime Minister and his colleagues set out a coherent economic plan and longer-term support to help businesses to restart, rebuild, and renew, the better. 2021 cannot be a year where Britain dithers while others do.”