Economy

Firms vulnerable

as government schemes approach end

Business conditions improved only moderately in the weeks since the UK economy suffered a record contraction in the second quarter of 2020, with firms still reporting high levels of reliance on government support schemes to help resolve cashflow issues.

That’s the standout headline from the latest British Chambers of Commerce (BCC) Coronavirus Business Tracker. The tracker survey, which serves as a barometer ofthe pandemic’s impact on businesses and the effectiveness of government support measures, received 502 responses during the week from August 3 to 7 and is the largest independent survey of its kind in the UK.

The unprecedented decline in business conditions seen during the second quarter is now levelling off, but firms still face difficult trading conditions. The number of firms reporting a rise in revenue from UK customers rose to 38%, from 34% in the previous tracker, and is up significantly from the series low of 3% recorded during the second quarter. However, despite this progress, the number of respondents reporting a rise in UK revenue is still not exceeding the number reporting a decrease (also 38%). Business-to-consumer firms were more likely to report improvements in UK revenue compared to other sectors, although these gains are from a low base due to lockdown restrictions, later reopening and pent-up consumer demand. A smaller proportion of firms (22%) are reporting a rise in revenue from overseas customers than from UK customers (38%) amid continued disruption to global commerce and trade flows. While there was a slight improvement in the number of respondents reporting a decrease in their cash reserves (50% compared to 55%), it remains more than double the number reporting an increase (22%). Despite the gradual reopening of the economy and more firms seeing a rise in revenue, 39% of businesses say they have three months’ worth of cash in reserve or less.

Of those businesses reporting an increase in their cash reserves, a significant number cited government support schemes as a driver of this, with the number of firms using the furlough scheme (34%) and the various loan (30%) and grant schemes (16%) still significant. More than two in three (68%) firms mentioned new business or customer demand as a factor.

With government support schemes set to wind down in the coming weeks, and with the potential reintroduction of lockdowns – either localised or national – it remains unclear what further support, if any, firms will receive when schemes end. Commenting on the results, BCCdirector general Adam Marshall said: “While some firms are seeing improvements in trading conditions, we are still very much in the eye of the storm, with further turbulence ahead. “As the government’s emergency measures begin to wind down over the coming weeks, and with the prospect of further local lockdowns still very real, businesses across the UK are going to need further support to weather uncertainty over the coming months. “Slashing the jobs tax by taking steps to reduce the burden of employers’ national insurance contributions, big new incentives for business investment, and targeted support to help businesses placed under local lockdowns all need to be put in place now. Ministers must not wait until the economic storm is once again at fever pitch before they act.”

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“The unprecedented decline in business conditions seen during the second quarter is now levelling off, but firms still face difficult trading conditions.”