The British Chambers of Commerce has called for “swift, substantial and immediate action” to bolster the economy, as its Quarterly Economic Survey (QES) – the UK’s largest independent survey of business sentiment and a leading indicator of UK GDP growth – found that UK economic conditions deteriorated at an unprecedented rate in the second quarter of 2020.
Key findings:
- Eleven of the 14 key service sector QES 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 performancedrop to record lows as BCC sets out measures needed to begin UK’s economic recovery
The results of the bellwether survey of 7,700 firms, employing over 580,000 people across the UK, illustrates the full impact of the coronavirus pandemic on the UK economy in the second quarter of 2020.
The service sector saw eleven of the 14 key indicators, including sales, orders and cashflow, drop to their lowest levels on record.
- The balance of service firms reporting increased domestic sales dropped a record 80 points from Q1 2020 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 its lowest level on record.
- The balance of manufacturing firms reporting improved domestic sales was 62 points lower than in Q1. For the export sales balance, it is 55 points lower
- The balance of manufacturing firms that are confident turnover will improve over the next year decreased from +34% in Q1 to –31% in Q2
Hopes of a swift economic recovery could be dashed, as forward-looking indicators – orders and investment intentions – dropped to record lows for both services firms and manufacturers. Business confidence dropped to its lowest level on record among services firms and declined to its lowest level since Q1 2009 for manufacturers.
Cashflow – a key indicator of business’ health – is at its lowest level, with two thirds of respondents reporting worsening cashflow.
With the economic impact of coronavirus laid bare in this survey, the leading business group has set out the measures firms need from the Chancellor’s economic statement due later this month, including:
- 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; and
- Streamlining regulatory processes to make life easier for businesses without compromising safety or the environment.
Suren Thiru, Head of Economics at the British Chambers of Commerce (BCC), said:
“Our latest survey highlights the extraordinary contraction in UK economic activity in the second quarter as the coronavirus closed large parts of the economy. The vast majority of indicators dropped 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 most acutely exposed to economic headwinds from the pandemic. The manufacturing sector 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.
“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, the prospect of a swift and sustained recovery may prove too optimistic.”
Responding to the findings, Director General of the British Chambers of Commerce Dr Adam Marshall said:
“Our results demonstrate the need for swift and substantial action. The Government has one chance to jump-start the economy and business confidence over the coming weeks – and they must take it.
“Business communities across the UK want to see a clearer, bolder roadmap to recovery that helps them restart, rebuild and renew. The UK cannot meander its way back to success in this era of uncertainty. The only way to re-kindle business and consumer confidence is to demonstrate an absolute and unshakeable focus on boosting the economy over the coming months.”
Thames Valley Chamber of Commerce CEO Paul Britton said:
“The Thames Valley has established itself as one of the most resilient business communities in the UK in previous recessions. These results set out the scale of the challenge that is ahead for businesses large and small and our communities. We will need all of the resilience and agility of our diverse business community and we need to see Government investing in areas of economic success that can bolster the nations recovery through our national supply chain and world centres of excellence, otherwise we are at risk of levelling down the nation”.
