The British Chambers of Commerce is calling for “swift, substantial and immediate action” to bolster the economy as its Quarterly Economic Survey (QES) shows that UK economic conditions deteriorated at an unprecedented rate in the second quarter of 2020.
Key findings include:
Eleven of the 14 key service-sector indicators fall to their lowest level in the survey’s 31-year history;
The percentage balance of firms reporting increased domestic and export sales is now substantially lower than the worst quarter of the 2008-09 recession;
Indicators for longer-term business performance drop to record lows.
The QES is the largest independent survey of UK business sentiment and GDP growth. The results are drawn from responses from 7,700 firms employing more than 580,000 people.
Rob Johnston, Chief Executive of Cumbria Chamber of Commerce, said: “We know from our own Cumbrian survey that businesses have been severely affected by lockdown, so the British Chambers’ findings are no surprise.
“Even so, it’s chastening to see the vast majority of indicators drop to historic lows with declines far exceeding those seen at the height of the global financial crisis.
“The services sector suffered particularly badly with consumer-facing firms acutely exposed to economic headwinds from the pandemic.
“Manufacturing also had a dismal three months with collapsing demand and major disruption to supply chains weighing on the sector. The unprecedented slump in business cashflow is a key concern as it severely hampers business activity and staff retention.”
He added: “With lockdown restrictions steadily easing, the second quarter is likely to prove to be the low point for the UK economy. However, the collapse in forward-looking indicators of activity suggests that, unless action is taken by government to stimulate demand, the prospect of a swift and sustained recovery may prove too optimistic.
“The Government has one chance to jump-start the economy and business confidence over the coming weeks – and they must take it.”
The British Chambers of Commerce has set out measures that businesses need from the Chancellor’s economic statement, due later this month. These include:
Supporting jobs through substantial reductions in Employer National Insurance Contributions;
Supporting cash flow through wider business rate reliefs and extended loan and grant schemes;
Supporting young people through wage subsidies for apprenticeships and work experience;
Supporting investment in productivity, people and carbon reduction through major incentives;
Stimulating demand, e.g. via targeted ‘restart vouchers’ for all UK households or a temporary VAT cut;
Streamlining regulatory processes to make life easier for businesses without compromising safety or the environment.
The QES’ findings are expressed as balance figures – the percentage of firms that report an increase minus the percentage that report a decrease. A positive figure indicates expansion and a negative figure contraction.
In the second quarter of 2020:
The balance of service firms reporting increased domestic sales dropped a record 80 points and is now 28 points lower than the worst quarter during the 2008-09 recession;
The balance of service firms reporting increased export sales dropped a record 55 points (to –55%) and is now 42 points lower than the worst quarter during 2008-09 downturn;
The balance of service firms confident that turnover will improve over the next year decreased from +38% in Q1 to -36% in Q2.
Business-to-consumer (B2C) service sector firms such as retail, leisure and hospitality, were consistently more likely to report decreases across key indicators than business-to-business (B2B) service sector firms.
In the manufacturing sector, nine of the 14 key indicators measuring activity in the sector dropped to record lows:
The balance of manufacturing firms reporting improved domestic sales is 62 points lower than in Q1 and for the export sales the balance is 55 points lower;
The balance of manufacturing firms that are confident turnover will improve over the next year decreased from +34% to –31%.
Forward-looking indicators – orders and investment intentions – dropped to record lows for services firms and manufacturers. Business confidence dropped to its lowest level on record among services firms and to its lowest level since Q1 2009 for manufacturers.
Cashflow – a key indicator of business’ health – is at its lowest ever level, with two thirds of respondents reporting worsening cashflow.