One in seven businesses in Britain was teetering on the brink of collapse even before the new lockdown in England came into force at the start of November, the latest official snapshot of trading conditions has revealed.
The regular update from the Office for National Statistics showed that one in seven firms polled during the last two weeks of October said they had low confidence or no confidence that they would survive the next few months. The hospitality industry was the least confident, with one in three firms fearful of collapse.
Economists are predicting that the economy will take a significant hit from the tougher restrictions imposed to slow the spread of the Covid-19 virus, but the ONS figures suggest that many companies were already struggling.
The news came as the employers’ organisation, the CBI, said the resurgence of the virus was having a marked impact on factory order books and the International Monetary Fund warned that the global economy was losing momentum after a stronger than expected third quarter.
Ahead of a virtual meeting of the leaders from the G20 group of developed and developing countries, the IMF’s managing director, Kristalina Georgieva, said the road to recovery would not be easy despite the recent vaccine breakthroughs.
With UK consumer confidence weakening as a result of the surge in infections, the ONS report provided a gloomy backdrop to next week’s announcement by the chancellor, Rishi Sunak, of the government’s spending plans for 2021-22.
Pessimism was most apparent among hotels and restaurants where a third (34%) of businesses said they would struggle to make it through to the new year.
The ONS reported that by the end of October – the date when the government’s furlough scheme was originally due to end – 9% of workers, about 3 million people, still had their wages subsidised by the state.
In the arts, entertainment and recreation sector – much of which remained closed even as restrictions were lifted elsewhere during the summer – 34% of the workforce remained furloughed.
Sunak announced earlier this month that the furlough would be extended until at least March, with workers paid 80% of their wages, but the ONS evidence on a possible wave of business failures suggests unemployment will continue to rise through the winter.
Data from the ONS covering the period up until the middle of October showed the impact of the new English lockdown on the economy.
The ONS said footfall among shoppers was 44% of the level seen in November 2019, while traffic on the roads was 22% down on its pre-crisis levels in February.
Meanwhile, the number of adults shopping for items other than food and medicine dropped to 10% – the lowest level since June when non-essential stores were reopened after the first lockdown.
The CBI said 61% of the manufacturing firms responding to its monthly industrial trends survey said order books were below normal against 21% reporting they were above normal. The gap of -40 percentage points in November compared with -34 points last month.
Anna Leach, the CBI’s deputy chief economist, said output volumes had been declining at their slowest pace in over a year during the economy’s recovery phase. “But order books have softened again as global demand has been hit by intensified lockdowns, and manufacturers have trimmed their expectations.”
Georgieva said a medical solution to the crisis was now in sight but the economic road ahead remained difficult and prone to setbacks.
“On the upside, faster-than-expected containment of the virus or the development of better treatments would allow for a quicker return to normal activity, limit economic scarring, and boost growth.
On the downside, if new outbreaks require more stringent mobility restrictions, or if the development, production, and widespread distribution of vaccines and treatments is delayed, social distancing will persist for longer.”
