A report from the Centre for Economics and Business Research (CEBR) think-tank and polling company Opinium shows that 591,000 businesses are at high risk of going bust as a result of the COVID-19 pandemic – a figure representing one in ten UK businesses.
The study also suggests that more than a quarter of a million firms will not survive if the lockdown lasts for another month, while 1.1m firms could collapse if the lockdown rolls on for another three months.
The first edition of the Business Distress Tracker published CEBR found that 1 in 10 British businesses say that there is a high risk they will enter insolvency as a result of the coronavirus crisis. This equates to more than half a million (591,000) businesses that have been pushed to the brink.
The majority (51%) of businesses state that there is at least a small risk that they will go insolvent due to the crisis, equating to nearly 3 million firms across the country.
The report says more than a quarter of a million businesses will not be able to survive if trading conditions remain as they are for another month. The second wave of infections and a subsequent lockdown could prove fatal for the business community – the survey suggests that 1 million businesses could not survive 3 more months of the lockdown.
The Survey has also shed the first light on how quickly the economy can rebound after the crisis. Businesses on average say they will need 6 months to return production to pre-crisis levels. 1 in 6 firms will need at least a year to recover, dashing hopes of an immediate bounce-back for the UK economy once restrictions are lifted. UK GDP not set to return to 2019 levels until 2022.
During the first 30 days of the national lockdown, businesses’ profits were down on average 29%.
The tracker has also highlighted the consequences of the pandemic from a loss of workforce skills to the potential failure of otherwise viable businesses – are set to inflict long-term damage upon the UK economy.
A more positive finding is that many businesses are using the spare capacity to focus on improving their existing internal processes, developing new products, or promoting employee training. These measures could pave the way for productivity gains among certain companies when the UK emerges from the current crisis.
Pablo Shah, Senior Economist at Cebr said “The results of the Business Tracker provide the first glimpse of the deep and long-term scars that the coronavirus crisis is set to inflict upon the UK economy. More than a half a million businesses are at a high risk of insolvency, while more than 250,000 do not expect to survive another month of the lockdown.”
“Even for those businesses that do survive, the recovery looks set to be slow, with 1 in 6 businesses needing at least a year to return to pre-crisis levels of production. These figures dash hopes of an immediate bounce-back once restrictions are lifted, and instead point to a prolonged period of subdued output that is set to last for a period of years, rather than months.”
James Endersby, Chief Executive at Opinium said “The damage inflicted on UK businesses by the pandemic and lockdown is colossal, and the figures make for very sombre reading. The business impact is felt in almost every region, every sector, across every business size and at almost every level of employment. It’s unavoidable.”
“With more than a quarter of a million businesses fearing they won’t survive if trading conditions remain as they are for another month, and a million businesses unable to last for three more months of lockdown, the Government’s comprehensive plan to unlock and restart the economy is well-anticipated and desperately needed.”
Business insolvency risk
Just 2 in 5 (41%) of businesses feel that they are safe from insolvency as a result of the coronavirus-related disruption. Meanwhile, 51% say that there is a high (10%), moderate (15%) or small (26%) risk that they will enter insolvency as a result of the crisis. This equates to 2.9 million businesses across the country.
The survey also reveals the urgency of the situation. An estimated 257,000 UK businesses will not be able to survive another month of the lockdown conditions, while 1.1 million would not be able to survive three more months of lockdown. It is expected that the lockdown will be eased gradually in the coming weeks, providing a lifeline for some of these businesses. However, the survey results also underscore the economic carnage that a second wave of infections could wreak, given the number of businesses that have already been pushed to the brink of collapse by the first wave.
Almost all businesses (88%) have made workplace adjustments in light of the current economic crisis. On average, businesses have placed 35% of their employees on furlough. Smaller businesses with 10-49 employees seem particularly likely to take advantage of the Government’s Coronavirus Job Retention Scheme, with senior decision-makers stating that their company have furloughed 45% of staff on average. In addition to furlough, on average 32% of employees have seen a reduction in their working hours and a similar proportion (33%) have experienced wage cuts.
The survey also discovered that on average 35% of businesses have required that some or all staff work from home and 26% have had to close part of their business.
Business activity rates
During the first month of the national lockdown, business profits were down by an average of 29%. Among businesses with 1-9 employees, profits were down by 35%. The picture is particularly bleak in the wholesale and retail sectors, where profits were on average 35% lower than they would otherwise have been during the first month of the national lockdown. Companies with a B2C focus have also taken a particularly large hit, with profits down by an average of 36%, compared to 26% for businesses with a predominantly B2B clientele base.
The scale and severity of the disruption to activity means that the UK is suffering a period of deep economic contraction. What is less clear is whether economic output will be able to rebound swiftly after restrictions are lifted, or whether the deterioration of human capital, severing of employee-worker relationships and the loss of otherwise viable businesses will lead to only a gradual recovery in output.
The results of the business tracker point to a concerningly high share of businesses that feel they will not be able to bounce back to full activity once conditions return to some semblance of normality. On average, firms state that they will need 6 months to return to their pre-coronavirus levels of production, while a significant minority (16%) will need longer than a year. Digging into these numbers further shows that the expected recovery time is greater for large companies. Indeed, businesses in the survey with an annual turnover of £5 million or greater expect they will need nearly 8 months after the lifting of restrictions for production to return to pre-crisis levels.
These results suggest that an immediate bounce-back is not on the cards once restrictions are lifted. Indeed, the majority of businesses are set to remain at levels of production below their pre-crisis levels throughout the remainder of 2020. Meanwhile, the scars of the current crisis will affect many businesses for a period of years rather than months. As a result, Cebr forecasts that UK GDP will remain below its 2019 level until 2022.