Business Conditions in The UK Strengthens in August But So Do Apprehensions for Early Recovery

Summary

• The British Coronavirus Business impact tracker of BCC for August reported that 38 per cent firms who responded to its weekly survey reported an improvement in their turnover compared to 34 per cent reported in the previous week.
• While most companies stated that they see the business conditions improve but remain wary of future trading conditions.
• The BCC maintains that continued government intervention is required to protect businesses and livelihoods in the country while also strengthening the recovery process.

The business conditions in the United Kingdom continued to improve into the month of August as well. The British Coronavirus Business impact tracker survey of British Chambers of Commerce conducted between 3^rd and 7^th of August has shown that 38 per cent of its respondents have reported their turnovers have increased during the period compared to 34 per cent the previous week. The survey, however, also showed that an equal 38 per cent of the surveyed firms also reported a fall in their turnover during the period while 39 per cent reported that they have cash reserves only up to another three months. There is thus a heightened state of apprehensiveness among the businesses in the country regarding how the economic situation might take shape over the next few months in the country, which is making them conservative on their outlook. It is worth noting here that the coronavirus pandemic is still expanding in the country though at a decelerated pace, and till now it has infected as many as 320,500 people out of which at least 41,381 have already succumbed to it.

The state of revenue growth- a mixed bag of results

The BCC survey which received 502 responses during the first week of August saw only a marginal increase in the number of companies whose turnover has increased during the period. This marginal weekly increase in turnover levels revealed that the situation has not been improving for many companies in the country despite the removal of the majority of pandemic related restrictions by the government.

The recovery levels witnessed across different industries in the United Kingdom has been different. The Housing construction and the retail industry has been above the league and have recorded very high recovery levels. However, industries like hotels, restaurants, arts, recreation, and travel have been slow to take off, as they bear a heightened risk of spreading the infection and hence are still subject to continued social distancing measures.

This state of disparity in the recovery of different industries is also adding to the state of anxiety and uncertainty in the country, which inadvertently is impeding the further recovery of the industries who have recovered ahead of others. However, the state of recovery till now has been ahead of what had been forecast by Office of National Statistics (ONS), Office of the Budget Responsibility (OBR) and the Bank of England a couple of months earlier.

The challenges that lie ahead

The biggest challenge that lies ahead in the recovery process of various industries, in case of an early withdrawal of the various stimulus packages that were rolled out in the month of March. Most importantly, the furloughing scheme, under which nearly nine million jobs in the country were protected through the lockdown and months after. This scheme, however, is coming to an end at the end of this month and the government has so far not given any indication of extending it.

The second challenge is the continuing threat of the pandemic, which still after five months of efforts by the NHS and several other government bodies is persisting. There is, however, a further risk that the pandemic may make a resurgence in the winter months. Several experts who have studied the earlier epidemics of SARS and MERS which was caused by different strains of the same coronavirus, which is causing COVID- 19, caution of a strong possibility of a resurgence. If this indeed happens and the government is forced to reimpose a lockdown much of the recovery that has taken place over the previous few months will be undone, and the country will shrink into a much deeper recession than was previously envisaged.

The above two are the main factor that is making the businesses in the country apprehensive, and they are reluctant to expand their businesses to full capacity levels. A report of the Office of National Statistics in the second week of August had stated that most businesses in the country are only expanding their operations as per the demand levels they are facing and not to their full capacity. While in the BCC report, nearly a third of the businesses said that the stimulus support was a major reason for them making a bounce back.

The silver lining

The Bank of England in its recent report had stated that it expects the British economy to perform much better in the final six months of this year than it had previously expected. Earlier, they had also stated that they expect that most of the people who had been furloughed will be brought back by their employers by the end of the year. Last week also saw the government extending its the Self-Employment Income Support Scheme (SEISS) to the self-employed people in the country which had ended in the month of June.

However, the most important event that will give a major boost to the recovery efforts in the country will be the arrival of the vaccine. This vaccine will not only reduce the healthcare risk levels significantly in the country but will be a major confidence jab for the people and the businesses as well. The last quarter of the year is the most important time for most of the businesses in the country. The festive season when most of the consumer spending happens could very well put the economy in high gear and help it propel into a recovery trajectory. But for that, it is important that the government, NHS, and the vaccine development efforts are well coordinated.