Managing a business takes a lot of effort and commitment – but now, we’re living in extraordinary times. In addition to affecting us on an individual level in the UK, the ongoing COVID-19 crisis is also going to have far-reaching implications for businesses and the economy.
The coronavirus lockdown, having already resulted in the temporary closure of hundreds of UK-based businesses, is posing even greater and long-term challenges. With economic forecasts indicating that we may be living through the deepest recession since the 1920s, it’s vital that we brace up, plan ahead and work towards establishing a coherent response to this unprecedented crisis.
We all know how this pandemic is affecting us individually because we’re living through it – but if you want to know how the COVID-19 lockdown will impact our economy or the health of your business, read on:
COVID-19: The United Kingdom Economic Snapshot
A month ago, the UK government decided to impose a nationwide lockdown to curb the spread of the coronavirus pandemic. As all non-essential businesses shut down temporarily, we began to realise how this crisis would significantly affect the UK economy.
According to a survey by the Office for National Statistics (ONS), one-quarter of companies in the UK have already shut down because of the coronavirus lockdown.
Out of the companies that all still operating, most have had to roll back on operations after declaring a decline in the turnover. The ONS survey showed that over 38% of companies still operating reported “substantially lower” turnover than normal.
Another report indicated that over half a million businesses reported that they were in “significant distress”. The number of “critically distressed” companies also rose by 10 percent.
The term “significant distress” is used to define the health of businesses that have court judgments of £5,000 filed against them or have other issues in key financial indicators (like ratios) while “critically distressed” is used for businesses with judgments of over £5,000.
Almost all of the 509,000 businesses in distress have less than 250 employees, meaning they were small to medium enterprises (SMEs). These figures clearly indicate that small businesses are particularly vulnerable to the economic impact of the COVID-19 lockdown.
In light of these developments, businesses around the country have had to make some tough decisions. According to the ONS, over 40 % of businesses still operating stated that they were cutting down on staff and another 29% stated that they were slashing the total work hours.
It’s clear that businesses Another ONS survey stated that over 30% of businesses have had to take extraordinary measures like downsizing employees and/or reduce working hours during the second half of last month (March).
It is worth noting that to evaluate the extent of economic damage caused by this pandemic in the UK, we require some standard economic markers. These economic indicators will not be available for another month.
Since we still do not have access to main economic indicators, we can only make estimates as far as the GDP growth is concerned. We present two scenarios, based on the severity of this crisis. Estimates for this year range between around -4% to -5%.
Past estimates, made before the outbreak, projected overall growth of 1% in the UK’s GDP for 2020. So, the GDP growth for the year 2020 could range anywhere between -3% to -7% in our two scenarios.
However, since we are still at a very early stage of this outbreak all estimates we make at this point are highly uncertain. The economic situation is expected to improve by 2021 but it is too early to gauge how soon we would recover from the slowdown.
Bars, food establishments and property companies are already reeling from the effects of the lockdown. Tourism, transport, hospitality and food industry would remain the worst-hit sectors and their output could decline anywhere between 15% to 40%, depending on the overall length of the lockdown.
On the other hand, demand for healthcare-related services and some other public services is going to rise so these sectors may thrive in the coming months.
As we have already mentioned, most businesses that are still functioning are taking steps to cut down on expenses. Most businesses are reducing staff or work hours, others are implementing pay cut policies.
Low paid workers will be directly affected by such policies and we’re witnessing the effects already. According to the UK government, 1.4 million new benefit claims have been filed since mid-March. These claims include Universal Credit and job seekers allowance.
According to the Office for Budget Responsibility, we will see unemployment levels rise by 2.1 million to 3.4 million by the end of June. The government is advising business owners to avoid laying off employees during these challenging times.
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