The re-opening of shops provided a much-needed relief for retailers in the last two weeks, as the number of companies with a negative assessment of trading conditions plummeted from more than half (54%) to 37%, according to the latest Opinium-Cebr Business Distress Tracker. However, the overall business picture remains uncertain, and a third (35%) of UK companies still report a risk of insolvency due to the crisis.
Business Distress Tracker topline results
For the UK economy as a whole, there was a meagre improvement in
business environment, with the impact of coronavirus on profits falling to its lowest point since the Business Distress Tracker began in mid-April.
The small gains recorded in in the latest wave have offset only a tiny fraction of the damage that has been sustained since the start of the crisis. 1.8 million (35%) firms continue to believe there is a risk of entering insolvency as a result of coronavirus-related disruption, suggesting that the pace of improvement must accelerate for more businesses to feel reassured that they can weather the entirety of this storm.
The re-opening of hotels, restaurants and pubs on 4th July cannot come quickly enough for the hospitality sector, which is among those hit hardest by the lockdown. Nearly three out of four (72%) of businesses in the sector described current trading conditions as bad (31%) or very bad (41%) in the latest wave of the tracker, while nearly one in three (31%) state that there is a moderate (21%) or high (10%) risk of entering insolvency as a result of coronavirus-related disruption.
James Endersby, Chief Executive at Opinium said “When looking at the broader picture, a light at the end of the tunnel does appear to be surfacing for some businesses across the country – with current trading conditions and future prospects both improving. However, the de facto situation for employees remains bleak; yet again our Distress Tracker has discovered that increasing proportions of the UK workforce are facing furlough, reduced hours, and lower salaries. There are also growing concerns about the economic and business impacts that localised lockdowns, such as that currently in place in Leicester, will have on confidence, the national economy and employment conditions.
“As the Government attempts to boost the economy and restore a sense of normality, most notably with the changes coming into effect from the 4 July, attention will be turned to the extent to which the country is will return to its pre-lockdown lifestyles and consumption levels.” Pablo Shah, Senior Economist at Cebr said “While businesses did report an improvement in trading conditions between the end of April and the end of May, the evidence of the most recent waves of the Business Distress Tracker suggests that the momentum has dwindled somewhat. The notable exception to this is the retail sector, with the survey results showing that the re-opening of stores on 15 June has injected much needed life into the industry. The hospitality sector now stands out as the sector in most urgent need of attention. Much will depend on whether households will flock back to restaurants, hotels and pubs upon their re-opening from 4 July, or instead whether the lingering threat of the coronavirus will elicit a more gingerly response.”
Business insolvency risks
While businesses’ assessments of current trading conditions improved in the latest wave of the Tracker as restrictions continued to be eased, the share that feel there is some risk of entering insolvency as a result of coronavirus-related disruption remains stubbornly high at 35%, or around 1.8 million businesses. This emphasises that while the business environment is better now than it was during the nadir of the crisis in April, for millions of companies the progress has not been sufficient to remove the risks of insolvency.
As expected, the current pandemic continues to drastically impact employees across all business sizes and sectors, with nearly four fifths (78%) of companies having to adjust as a result of coronavirus-related disruption. The latest wave of the Distress Tracker has found little cause for celebration in terms of easing the strain on employees, with the proportion furloughed (30% up from 27%), on reduced hours (27% up from 25%) and receiving a reduced salary/wage (29% up from 27%) all increasing since the previous wave two weeks ago.
Business activity rates
In the latest wave, businesses said that profits over the past month were on average 26% lower than would have been expected for this time of year under more ordinary circumstances. This is the “least-bad” rate of contraction recorded over the five waves of the Business Distress Tracker thus far. However, as is the case with the other metrics, the scale of the improvement recorded between April and June pales in comparison to the deterioration recorded between February and April.