Post-Lockdown One in Three British Firms Struggling with Sustainability

Post-Lockdown One in Three British Firms Struggling with Sustainability

Summary

  • Slow pick of business activity is attributed to the continuing social distancing measures and fear of people to come out of their houses and visit shops, supermarkets, and other business establishments.
  • Some sectors like transport, hotels, food services, arts, entertainment, and recreation are struggling the most while construction and retail industries have been able to make a turnaround.

The office of the National Statistics (ONS) in a report published on the 12 August 2020 has stated that after the opening of the lockdown, as much as a third of the businesses in the country are struggling to scale up their businesses to sustainable levels. Giving a further industry-wise breakdown, the report points out that the industries which were allowed to open late and the ones which are subject the enhanced social distancing measures are the ones struggling the most. In addition, the sectors where people have to often come in close contact with each other are also seeing a very slow pick up of business activity as people are generally avoiding such places. The analysis of the ONS which is based on the responses of 10,000 businesses to its monthly businesses survey (MBS), also showed that businesses are responding more to the demand in the market to increase their production rather than trying to operate to full capacity. The ongoing threat of the pandemic and the strong possibility of a resurgence in the number of infections in the winter months is also playing to the psyche of the businesses, which is making them much more risk-averse.

The survey points out that the problem of a slow pick of business activity has plagued as many as a third of the businesses in the country who are not able to achieve sustainability. Most of these businesses which had been modelled to operate at a much higher level of production and revenue are trying to cut down their operating costs to meet their turnover levels. These measures, which often include cutting down on labour and slowing down in bringing back more people back from furlough, are also indirectly contributing to the slow pick up of demand levels in the country.

The uneven recovery rate of different sectors is also contributing to the slower than desirable recovery rate for the entire economy. Uneven recovery rates are not only adding to the level of uncertainty in the economy but are also rousing up fears that the recovery is not sustainable and that there will be an overall fall in demand levels in the country after some months. The initial surge witnessed since the opening of the lockdown, particularly in the retail and the housing construction sector has been attributed to the pent-up demand from the lockdown period. The ONS report further suggests that this state of unsustainability is maximum in the manufacturing and the real estate sectors where 54 per cent and 53 per cent of the firms are reporting that they are not able to meet their operating costs.

The continuing threat of the pandemic

The most contributing factor to the slow rate of recovery of the economy is the continuing threat of the pandemic. Even after struggling with the virus for more than five months now, the country has not been able to eliminate the coronavirus infections from its land. The pandemic which till now has infected more than 313,800 people in the country has caused large scale economic disruption in the country, which most of the institutions in the country like ONS, OBR (Office of budget responsibility) and the Bank of England believe will take a long time to recover.

Concerns regarding physical well being and future livelihoods are also making the general public anxious, and they are becoming more and more conservative in their spending habits. People are now more inclined in the country to move back to suburban areas where it is less crowded, and the cost of living is also lower.

Based on the experience gained with the earlier epidemics of SARS and MERS which had affected large parts of the world population a few years ago it is being predicted that there is a strong possibility of a resurgence in the spread in infections in the winter months. Both of the above two endemics, which were caused by the different strains of the same coronavirus that is the reason for the current COVID- 19 pandemic, had caused significant economic damage but nowhere near to the scale that is being seen now. Should a resurgence of the pandemic happen as is being predicted, it could undo most of the recovery that has been achieved in the past few months and push the economy into a much deeper recession.

Many of the business owners are therefore trying to be cautious and not expand their businesses presently, to be able to withstand the shock if it hits the way it is being predicted.

Three worst affected industries

The industries which are struggling the most to meet their operating costs are the transport, hotel & food services, and art, entertainment and recreation industries. These industries were affected most because of the pandemic. The Aviation sector, which is part of the overall transportation sector went into a virtual shutdown across the world as countries tried to contain the spread of the virus by restricting travel. The business revival across the hotel, food services, arts, entertainment, and recreation sector depend a lot on the number of footfalls they get into their premises. At the same time, these sectors pose the highest risk to transmit the infectious Covid-19 flu. In view of the continuing threat levels, the government allowed these industries to restart their operations later than others and also imposed enhanced safety and social distancing measures on them.

To sum up, an ONS report stated that one third of the UK businesses are still struggling to scale up their businesses to sustainable levels and are not able to meet their operating costs. While some sectors are worse affected than others, the overall recovery process is expected to be slow and difficult, given the uncertainties with respect to complete eradication of the deadly flu from the nation.

 


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