ICAEW’s Business Confidence Monitor (BCM) for Q4, has found that the proportion of companies struggling from a lack of demand had increased from more than a third in Q4 2019 to half this quarter. Late payments were a rising concern for a third of businesses, indicating financial distress in the market as customers were either unable to pay their bills quickly – or pay them at all.
As businesses continued to struggle with the impact of lockdowns on trade, measures to stimulate consumer confidence and get cash flowing around the economy could deliver a much-needed boost. With less than 50 days to the end of the Brexit transition period, the report suggests that companies need a good outcome to the UK-EU trade talks to boost confidence and stimulate recovery.
Sales conditions were extremely difficult, the BCM found, with exports and domestic sales both down on the same period of 2019. Companies had cut their costs, reducing employment to a lower level than in Q4 2019, though some jobs were likely saved by the furlough scheme.
The transport, construction, manufacturing and retail sectors were the worst hit, probably reflecting the lockdown in the UK. Finance, utilities and IT had fared better.
Growth in domestic sales and exports was expected to rebound across all company sizes, although the current lockdown in England would likely make that harder.
Given the lockdown conditions experienced this year, some companies said they had become more concerned about problems with transport and their ability to expand into new markets.
Profits had also fallen, but companies expected better performance over the year ahead.
The UK and global economies should at least partially recover next year, the BCM said, though much would depend on vaccines and the speed at which normal life returns.
Michael Izza, ICAEW Chief Executive, said “This year has been an unprecedented struggle for businesses as they faced the existential threat posed by COVID-19. While some businesses have survived and thrived, for many 2020 has been a challenge like they never expected, which they have not yet recovered from – and which shows little sign of abating.”
“The government’s support schemes have protected many jobs and businesses but policymakers should now be considering how they can encourage people to spend.”
“While hopes of a successful vaccine are growing, the state of business confidence now reflects widespread expectations of a difficult winter. As we reach the halfway point in this lockdown, what would boost business confidence is a fair deal in the UK-EU trade talks, and we urge government to redouble its efforts to secure an outcome to stimulate and sustain the UK’s post-pandemic economic recovery.”
There was also some evidence of a north-south divide emerging, the report found. Businesses in the East Midlands, the North of England and North West had seen the biggest declines in domestic sales, while those in Wales and the East Midlands saw the biggest declines in employment.
The furlough scheme had been vital in protecting jobs and incomes, and government support measures had helped prevent a “damaging downward spiral” of job cuts, drops in spending, and then further job cuts, ICAEW said.
Overall, business confidence was in negative territory, a reflection of the pandemic and the end of the Brexit transition period, the survey of chartered accountants found. In particular, there was low confidence in the IT, transport and property sectors, which likely explained why confidence was lowest in London of all regions.
The capital is particularly reliant on these sectors; in IT, while sales performance fared better than other sectors, companies were indirectly impacted by tough conditions for their clients and increased competition in the digital space. Transport and property were also affected by the pandemic.
Confidence was highest in the East Midlands, possibly because of the region’s reliance on food manufacturing which has been less affected by lockdown than other sectors.