March 2020: Quick Review of the UK Economy and Business Activities

The coronavirus pandemic has been a part of the majority of conversations for the month of March, with community spreading of the disease at its core. The United Kingdom (UK) has already entered the Stage 3 of the coronavirus outbreak while the daily number of cases continue to rise at an unprecedented rate.

The turmoil has sent all the business activities at halt, including the temporary shutdown of all factories, retail stores and non-essential item stores on the high street also disrupting the supply chain or logistical functions. Let’s walk through all the major economic events that have taken place during this period in the UK.

For the month of March 2020, the Flash UK composite PMI has revealed a significant reduction in the level of business operation across the UK. The index data released by the IHS Markit CIPS showed a reduction in rates of activity in all the sectors it covers, signalling the start of economic slowdown. The sudden coronavirus outbreak in the United Kingdom has forced majority of its population to stay indoors, resulting in a significant drop in demand and logistical bottlenecks in the region. The longer the pandemic prolongs, the chances of the country remaining in lockdown increase, meaning that the country's business-related activity would continue to remain in shambles.

Flash UK Manufacturing PMI

The index of manufacturing purchasing managers stood at 48 in March was at the lowest level of last three-months. The index, which depicts an expansion while coming above 50 and a contraction if the numbers are below 50, clearly shows that the general mood of manufacturing purchase managers remains bleak. The number for February 2020, on the other hand, was 51.7, which meant improving economic conditions in the country backed by an ambitious reform agenda that the British government had undertaken to steer the country from the instability pre-Brexit. The outbreak led to manufacturing units shutting down due to government imposed restriction and call to people remaining indoors to prevent the spread. A decline in manufacturing activity rates had already started to become evident well before the month of March, when many businesses announced shortages in component supplies leading to large-scale losses in production.

Flash UK Business Activity Index

The economy's services sector is one among the hardest hit by this pandemic. The figure recorded for the month of March 2020 was 35.7, which is a massive fall from February's final value that stood at 53.2. This drop scale is the single biggest in survey record. The services business, which until a month ago was in expansionary mode, has plunged into a deep contraction. Also, the hardest hit of the lot has been the services sector, which was looking for a strong bounce back after the Brexit, as a result of the lockdown. However, the levels of activity in this sector could have declined further if there were no work available from home facilities. Because of this facility, various companies were able to manage their crucial deliverables. Though, once the pandemic ebbs, this sector is expected to be the first to recover as it has been seen earlier too that this sector always mark a way for manufacturing industry.

Retail Businesses struggle through their conventional business model

When all other industries around the globe are facing tough trading conditions, the retail industry is one that finds itself in the thick of activities. There was a time when the extent of footfalls on supermarket premises gaged a retail firm's success. However, as technology has evolved, the number of visitors on their respective websites and the number of online transactions they can generate have now been adjudicated. In times of coronavirus outbreak, the transition of these supermarkets from their traditional business model based on store & footfall to a business model for digital retailing has been accentuated considerably. Online ordering and delivery of merchandise at the doorstep of customers has emerged as the world's most critical business service activity that not only keeps the population adequately supplied, but also helps the retail industry fight the pandemic-induced economic slowdown.

The British Government has decided to relax the retail industry's competition regulations to allow retailers to work closely together to keep the country adequately supplied while fighting the coronavirus pandemic. The community spreading of the coronavirus in the UK has led to the death of more than 1800 people so far and has pushed it to lockdown situations. The health authorities are advising people to stay indoors to the extent possible so as to contain the spread of the virus. While most people have stockpiled provisions, the health officials have already signalled that the conditions of lockdown will continue for some time; hence, the requirement for the hour is coordinated measures by the government and the retailers in the country. The government's decision comes after it met some of the country's largest retailers and listened to their arguments for more than a week and looked deeply into their implications. The government will allow supermarkets to remain open beyond their regular working hours, under these regulations. The supermarkets would also be allowed under temporary waiver to share distribution depots, delivery vans, sharing staff and data among themselves on stock levels.

Government Environment Secretary George Eustice has mentioned that the government would temporarily remove the tax on a plastic bag for online grocery shopping. Eustice has reportedly been involved in the formulation of these waivers regulations. Packing food items in plastic bags usually helps to reduce the risk of cross-contamination during transportation, especially when they have to be delivered to people who themselves have quarantined. The Secretary further stated that in this hour of crisis the government would do all it can to help the retailers who want to come together in solidarity with the country.

Bank of England and the Government’s Quantitative Easing Measures

Just a week after the Bank of England's (BoE) Monetary Policy Committee decided to lower the interest rate from 0.75 percent to 0.25 percent, to address the coronavirus outbreak, the BOE's Monetary Policy Committee met again on Thursday, March 19, 2020. In that meeting the Central Bank announced that the interest was further reduced to a record low of 0.1 percent. This was a historic decision, as the bank rates were never declared to be this low, even during the two world wars crisis. The MPC has taken this unprecedented decision to boost borrowing and spending in the economy, so that the ailing industries in the United Kingdom get a chance to survive as and when the Covid-19 outbreak is contained, and the situation returns to normal.

In addition to slashing interest rates to a historic low, the Bank of England also announced quantitative easing measures worth £ 200 billion, taking overall measures to a value of about £ 645 billion. That came just days after an announcement by Rishi Sunak on behalf of the Exchequer of an economic stimulus package worth £350 billion. The purpose of this package was to ensure a massive increase in government spending as well as government loan guarantees that would allow companies to operate on a day-to-day basis and make payments to their employees and suppliers.

Other key events and Policy measures to Combat Coronavirus in March

• It has been reported that the MPC will establish a Covid Corporate Financing Facility (CCFF), which will primarily finance companies operating in the United Kingdom by purchasing up to one year of commercial maturity paper. Companies that make a tangible and material contribution to supporting the government and the communities during this period of crisis would issue them. This will be done to support companies facing immense financial distress and a cash crunch to pay daily wages and manage their day-to-day operations.
• It has also been reported that the facility would offer financing to those companies that are hard hit by the covid-19. However, BoE would look at the prevailing market conditions in the period before the Covid-19 pandemic began to take over customers and evaluate whether the firms had the sound operational and financial health just before the outbreak. But it is considered as a complicated and subjective process by many.
• In another meeting, held on 19 March 2020, BoE announced that it would expand the Term Funding Scheme for Small and Medium-sized Enterprise (TFSME). It was also pointed out that a large proportion of further acquisitions of assets would be made from UK government bonds under this.

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