1 In 10 Businesses Face Collapse As The Economic Crisis Deepens
It’s been predicted that business recovery will rise in the following 28 weeks, which however would suggest a much longer lockdown , as it will take longer to rebuild. But despite this, more than two-fifths of businesses (41%) report a positive outlook for next 12 months, offering a glimmer of hope for economy
One in ten businesses in the wholesale and retail sector (9%) are facing a collapse as it’s been stated they will not survive another month of the lockdown period, which is being said by the latest wave of the Opinium-Cebr Business Distress Tracker.
Furthermore, the long-term damage the economy will have to face continues to grow as the time that businesses anticipate they will need to recover from the crisis is now 28 weeks. This is a 3 week rise since the last Tracker, just a fortnight ago, and suggests the longer the lockdown persists, the longer it will take for businesses to rebuild.
Business Distress Tracker topline results
- Despite the damage that is piling up, there is a glimmer of hope that some businesses have made it through the lowest point of the coronavirus crisis, as more than two-fifths (41%) reported a positive outlook for the next 12 months. This is the first time during the crisis that the number of businesses with a positive assessment of future conditions has outweighed the number with a negative assessment.
- However, even though there are improvements in sentiment, conditions remain extremely challenging by any historical standard, and more than half a million (510,000) businesses are at a high risk of entering insolvency.
- The severity of the crisis varies between sectors. While, nearly one in ten (9%) businesses in the wholesale & retail sector state that they will not survive another month of the lockdown, manufacturers appear more resilient.
The Opinium-Cebr Business Distress Tracker checks the pulse of the UK business community on a fortnightly basis, as firms across the country grapple with the unprecedented challenges brought about by the coronavirus crisis. The Tracker is based on a survey of 500 business across the country, representing a broad range of industries and business sizes.
James Endersby, CEO at Opinium said “We are all going through the most immensely challenging time and all businesses are doing their best to keep their head above water. The good news is that there is no further bad news, with businesses adapting to life in lockdown as best as they can, but it is hard to avoid the large number still facing the risk of insolvency.
“Another ray of hope is that B2C businesses appear to be responding to steadily rising consumer demand by bringing some of their workers back from furlough. However, the incredibly challenging trading conditions across the board means that B2B businesses are yet to see any noticeable improvement in their outlook.”
Pablo Shah, Senior Economist at Cebr said “The latest results of the Tracker show that long-term damage to the economy is stacking up. Businesses now anticipate needing 28 weeks after restrictions are lifted to return to pre-crisis levels of production – 3 weeks longer than in the previous edition of the Tracker. Meanwhile – at more than half a million – the estimated number of businesses at high risk of insolvency remains alarmingly high.
“With that being said – while present conditions remain challenging to the extreme – the survey results suggest that we could perhaps be starting to see some break in the clouds. More than two in five companies now describe their prospects for the next 12 months as positive, while assessments of current trading conditions have also picked up marginally.”
Business insolvency risks
Insolvency risks for the business community as a whole appear to have receded marginally, with nearly 3 in 5 (58%) of businesses indicating that they are safe from insolvency as a result of coronavirus-related disruption. However, 9% of firms – amounting to 510,000 – remain at a high risk of going insolvent as a result of the current crisis.
Eight weeks after the national lockdown was introduced, many businesses are now on the cusp of closure. 5% of firms surveyed indicated that they could not survive another month if trading conditions remain as they are currently. The situation is particularly dyer in the wholesale & retail sector, where nearly one in ten (9%) of businesses do not think they can survive another month of lockdown.
Trading conditions and employment impacts
Though there has been a slight decline in the number of businesses making workplace adjustments, over four fifths (84%) of UK businesses continue to make changes to their operations. Positively, there has been a small reduction in the average number of employees on furlough (32% down from 35%), though the number of staff facing reduced hours (33% up from 32%) and wage cuts (34% up from 33%) have increased very slightly.
Most noticeably, B2C businesses have appeared to turn a corner. In our first wave at the height of lockdown two thirds (67%) said their trading conditions were poor, but this has dropped by 8 percentage points to 59% in our latest wave. Although they remain in incredibly difficult circumstances, it suggests both business and consumers have improved their ability to navigate their way through the lockdown measures. This has resulted in B2C businesses reducing the proportion of their staff on furlough (30% down from 36%) or with wage cuts (36% down from 41%).
Business activity rates
The latest business survey was conducted between May 7th and May 11th. At this time, all of the restrictions introduced on March 23rd remained in place, meaning that there was not a material change in the trading conditions faced by most businesses relative to two weeks prior when the previous survey was conducted. Profits over the previous 30 days were 30% lower than would have been expected under more normal circumstances. This is a fractionally larger fall than the 29% recorded in the previous survey.
Although businesses have become marginally more optimistic about their prospects over the next 12 months, the survey results also suggest that the longer the lockdown lasts, the longer it will take for most businesses to rebuild once restrictions are eventually lifted. On average, businesses anticipate needing 28 weeks to return to their pre-crisis levels of production – up from 25 weeks two weeks ago. Meanwhile, more than a fifth (21%) indicate that they will need at least a year before output can recover fully.