One quarter of companies in the UK have temporarily closed because of the coronavirus lockdown and the majority of those still operating have reported lower turnover, according to the Office for National Statistics.
The poll of 5,300 businesses — the largest so far of the impact on businesses — covered the first two weeks after the lockdown on March 23. During that period, 0.4 per cent of businesses said they had ceased trading.
This week the IMF and Office for Budget Responsibility, the UK’s fiscal watchdog, forecast that the UK faced the deepest recession since the 1920s as a result of the lockdown measures. The standard economic indicators showing the extent of the damage will take not be available for another month.
The ONS survey also showed that 38 per cent of companies still operating reported “substantially lower” turnover than normal and an additional 17 per cent said their turnover was “slightly lower”.
The lockdown resulted in widespread headcount cuts. According to the survey, more than 40 per cent of the businesses that continued trading said they were reducing staff levels in the short term. Another 29 per cent said they were reducing working hours.
Among businesses still operating, an average of 21 per cent of the workforce had been furloughed.
“Today’s ONS data lays bare the scale of the UK’s jobs-led economic crisis,” said Jack Leslie, economist at the Resolution Foundation, a think-tank. “Large swaths of the workforce have been furloughed, highlighting the importance of the Job Retention Scheme in staving off a monumental unemployment crisis.”
Meanwhile, a study by Begbies Traynor, the insolvency firm, found that more than half a million companies were in “significant distress”. The analysis was based on county court judgments ordering companies to pay their debts.
The impact of coronavirus has caused the largest quarterly rise since the end of 2017, with 15,000 more businesses classified as being in “significant distress” compared to the previous three months. The survey also showed a 10 per cent rise in the number of “critically distressed” companies.
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“Significant distress” is defined as businesses with court judgments of less than £5,000 filed against them or with other issues in key financial ratios and indicators, while “critical distress” is defined as judgments of more than £5,000.
Almost all the 509,000 companies in distress (504,000) have less than 250 employees, Begbies said, highlighting the vulnerability of smaller businesses to the economic impact of the lockdown. Many of these have struggled to access the government’s emergency loans, which require companies to be judged viable and able to pay back bailout funds.
The figure would have been even higher, according to Begbies, “but creditors have been held back from taking court action due to the lockdown”. Bars, restaurants and property companies were the hardest hit.
Julie Palmer, partner at Begbies Traynor, said: “With many SMEs yet to access government funding, many will simply run out of cash, particularly with the April pay run approaching and payment for furloughed staff still outstanding.”
Separately, the Bank of England credit conditions survey also released on Thursday showed a plunge in expected demand for mortgage loans, while lenders are planning to increase credit to businesses in the second quarter.
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According to the survey, carried out between March 6 and 20, just before the lockdown, the proportion of lenders reporting rising demand for mortgages minus those reporting a deterioration fell to minus 71 for the next three months, from 27 when reporting on the first three months of the year.
Many more lenders also expect to issue less credit to households in the next three months, with the balance falling to minus 23 in the next three months compared to 3 in the three months to March.
According to Hansen Lu, property economist at the consultancy Capital Economics “that’s roughly in line with what was seen during Q4 2007, as the global financial crisis was starting to take hold”.
The Bank of England survey also showed that lenders expect default rates to rise in the next three months for both households and businesses.
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Source: Economy - ft.com
