Business says the recovery will take two years – business news 26 April 2021.
James Salmon, Operations Director.
Business says the recovery will take two years, others say a year, cashflow suffers as support withdrawn, but evidence the UK economy is bouncing back fast plus lots more news.
Business says the recovery will take two years.
The Office for Budget Responsibility (OBR), predicts the UK’s GDP will return to pre-crisis levels by the middle of 2022. little over a year away.
However, according to a survey from by Kroll, the world’s premier provider of services and digital products related to governance, risk and transparency, business leaders believe that it will take at least two years for t the economy to bounce back to its pre-pandemic level.
Their survey asked 400 senior executives how quickly they felt the economy would return to pre-pandemic levels, as well as how confident they felt about a recovery this year.
Key findings included:
- 72% thought it would take between two to five years to see the economy return to the same level as 2019. Breaking that down 61% stated it would take two years and the other 11% stated it would take up to five.
- 51% (the majority) felt that the UK would begin to see a recovery underway this year.
- But 32% were not confident the UK would see the green shoots of recovery at all in 2021.
- 40% identified unemployment as the biggest issue facing the UK economy and a further 39% highlighted the linked issue of corporate failures.
Matthew Ingram, Managing Director UK Restructuring, Kroll, said : “The Office of Budget Responsibility is taking an upbeat view predicting an increase in UK GDP of 4% in 2021, followed by around 7% in 2022. On its assumptions GDP could well be back to its pre-COVID-19 level by mid-2022. However, our polling has identified a very different sentiment amongst those business leaders who are at the coalface. The confidence of the OBR is simply not being shared in the wider economy. It sounds counter intuitive to the broader narrative on the impact the pandemic. But what we are seeing is the impact of an activist government supporting businesses across two fronts—financial support and the temporary suspension of pre-existing corporate insolvency and governance legislation. But corporate Britain does feel like its covered in sticking plasters right now and the confidence many business leaders are feeling as the economy finally opens up is being tempered with the legacy that the necessary government interventions will leave behind.
“VAT deferments now need repaying, loans need servicing, staff need to be bought back off furlough, and rent arrears need settling. Corporate Britain has been piling up the debt and while that may have seen many through the pandemic, it will be an enduring challenge for many businesses as they look to the future. Our polling supports this as business leaders are acutely aware of the twin threats of unemployment suppressing consumer demand, and financial pressures as they come off government support.”
Small firms need a year to recover from pandemic
A survey of 500 SMEs by Nucleus Commercial Finance however finds that small firms believe it will take an average of a year for their business to make up for lost revenue caused by the coronavirus crisis. The study indicated medium-sized businesses are most confident about their recovery while younger business owners are more optimistic about making up lost revenue. Chirag Shah, chief executive of Nucleus Commercial Finance, said: “While the trepidations of the pandemic and subsequent restrictions will have lasting effects for many British businesses, it’s encouraging to see such optimism among SMEs about their projected finances as they return to business as usual.”
Small firms suffer cashflow woes just as support is withdrawn
The Sunday Times talks to small business owners who, after being devastated by the pandemic, face paying back Covid loans before their cashflow has been repaired. One businessman said: “The speed at which the Government thinks you’re able to start hurling money back at them is crazy.” Craig Beaumont, chief of external affairs at the Federation of Small Businesses said the issue was common, adding: “The Government should be throwing everything it’s got at getting businesses across this ‘unlock’ phase and into the recovery, to avoid businesses falling at the final hurdle because of lack of cashflow.” But Steve Russell, head of restructuring services at PwC, says VAT deferrals, the furlough scheme and emergency loans are “not gifts. They are support schemes that need to be unwound.”
Nearly 4,000 businesses repay furlough grants
Research by UHY Hacker Young indicates that some 3,777 businesses have voluntarily repaid over £760m in furlough grants to HMRC. The firm says it is likely that many of these businesses claimed furlough money in the early stages of the pandemic as a precaution in case they ran into financial difficulties.
UK economy rebounds with demand surging
Private sector activity grew at the fastest rate since November 2013 in April, hitting a reading of 60, according to IHS Markit’s purchasing managers’ index (PMI). This is up from 56.4 in the previous month and above the 58.2 forecast by economists. Service sector business activity rose from 56.3 to 60.1, while manufacturing output was up from 56.6 to 59.1. Chris Williamson, chief business economist at IHS Markit, said: “Companies are reporting a surge in demand for both goods and services as the economy opens up from lockdowns and the encouraging vaccine rollout adds to a brighter outlook.” Looking forward, Williamson added: “Business activity should continue to grow strongly in May and June as virus restrictions are eased further, setting the scene for a bumper second quarter for the economy.”
Data points to rapid recovery
Tracking data from Apple and Citymapper indicates that movement in cities has almost reached the post-Covid highs of last September, raising hopes of a strong comeback for the UK economy. Figures from Google suggest footfall in retail and restaurant hubs are down 30% compared to the 60% fall seen in February while data from Opentable show restaurant bookings last week were almost 40% down on normal levels. Meanwhile, data from Barclays suggests total spending was 15% above pre-Covid levels in the first week of the latest phase of reopening. Sanjay Raja, UK economist at Deutsche Bank, says he expects a 5% jump in GDP in a “roaring” second quarter compared to the previous three months. Fabrice Montagné, Barclays UK economist, adds that although the consumer-related fast data is heartening, it is labour market improvements that will in time prove much more critical to the sustainability of the recovery.
UK economy is on course for its best year of growth since WW2
Economists at EY Item Club predict GDP growth of 5% to 6.8% for 2021 – the highest rate since the Second World War. The economy is expected to regain its pre-pandemic size by the second quarter of 2022, they add, due to Britain proving “more resilient than seemed possible”. The final three months of this year should also see peak unemployment fall from 7% to 5.8%, EY said. Separately, the Deloitte Consumer Tracker shows every measure of confidence – from the state of the economy to general wellbeing and personal debt levels – improved over the first quarter. “The UK is primed for a sharp snap back in consumer activity,” said Ian Stewart, chief economist at Deloitte. “High levels of saving, the successful vaccination rollout and the easing of the lockdown set the stage for a surge in spending over the coming months.”
Broadbent forecasts speedy recovery
The deputy governor of the Bank of England predicts “very rapid growth at least over the next couple of quarters” as Britons spend cash accumulated during the pandemic and save less of their forthcoming income. Ben Broadbent is more bullish than most of his Monetary Policy Committee colleagues on whether people will spend their savings but he warns that the year ahead is likely to be bumpy regarding inflation with multiple shifts in demand and supply.
UK retail sales jump
Data from the ONS show retail sales in Great Britain rose 5.4% in March compared with the previous month – a much stronger reading than the 1.5% forecast by economists. Sales of clothes was particularly strong rising by more than 17% while the easing of travel restrictions towards the end of the month led to an 11% increase in fuel sales. Howard Archer, chief economic advisor to the EY ITEM Club, said: “It does appear that many people were intent on having an enjoyable Easter break and this likely lifted retail sales later in the month.” Also commenting, Lisa Hooker, consumer markets leader at PwC, said: “Much though these figures will give cheer to the whole sector, retailers will be hoping that these positive signs translate into a sustained return to the physical stores as they reopen across the UK over the course of April. The real test of whether pent-up demand can be turned into actual sales w ill come with next month’s figures.”
National Grid
National Grid has hired banks for the sale of a majority stake in its gas grid business, turning to the advisers that last month helped seal its biggest-ever acquisition, Bloomberg reported on Thursday. Bloomberg said Barclays, Goldman Sachs and Robey Warshaw will assist the London-listed utility on the sale of a stake that could be valued at up to £5 billion.
Charities ration services as pandemic bites
Fundraising experts warn that charities will inevitably have to ration their services after the pandemic left them struggling for cash. Some small operations are suspending services leaving others to pick up the slack. The Sunday Telegraph notes that between April 2020 and February, the Charity Commission saw a 25% increase in concerns being raised by auditors over reports and accounts. The main issue reported was insolvency or financial difficulties.
Equivalence or no equivalence, London will stay financial services leader
KPMG ’s head of Financial Services Karim Haji has said if the UK and the EU fail to agree a deal on equivalence it won’t be the end of the world. Although it would “make life easier”, it was not mandatory for a successful financial services sector. “If you take a step back, the UK has been one of the leaders in financial services regulation and infrastructure, it’s one of the key innovators in the space as well, and one of the leaders in the world, and that’s why the UK has been successful in exporting financial services – that isn’t changing as a result of Brexit,” he continued. Mr Haji’s comments come after EU commissioner Mairead McGuinness said there was no pressure to reach agreement with the UK on financial services.
EU will come round on financial services deal
It is in the EU’s own interests to agree a post-Brexit deal on financial services, says PwC’s global head of financial services John Garvey, who predicts that although an agreement may not transpire in the short term, the Europeans will eventually realise they need access to the London market. An aversion to shouldering the risk is also hampering the EU’s efforts to set up a new financial centre, Garvey adds, as none of their governments, particularly Germany, is comfortable with taking on the responsibility.
Time for citizens to take back control, scientists say
In an open letter published yesterday, leading scientists say ministers and Government advisers are exaggerating the threat from COVID-19 and that all restrictions must be lifted on June 21 – the final date in Boris Johnson’s roadmap out of lockdown. They argue that with data showing vaccines reduce the risk of death by 98% and hospitalisations by more than 80%, COVID-19 is being turned into a mild disease in Britain. The letter’s 22 signatories include Professors Carl Heneghan and Sunetra Gupta from Oxford University, Emeritus Professor Hugh Pennington from the University of Aberdeen and Professor Robert Dingwall from Nottingham Trent University. “We are being told, simultaneously, that we have successful vaccines and that major restrictions on everyday life must continue indefinitely. Both propositions cannot be true,” the scientists write. They add: “Mandatory face coverings, physical distancing and mass community testing should cease no later than 21 June along with other controls and impositions. All consideration of immunity documentation should cease.”
UK public support green taxes to achieve net zero, survey finds
With surveys suggesting increased public support for green taxes, campaigners argue ministers have a mandate for wholesale tax reform fit for a sustainable future rather than a fossil fuel economy.
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