Businesses’ profits reach post-lockdown high in August
- The Eat Out to Help Out scheme delivered a major and much needed boost to the hospitality sector in August. Although profitability in this sector was 36% lower as a result of the coronavirus pandemic in the latest wave of the Opinium-Cebr Business Distress Tracker, this is a dramatic improvement on the 59% reduction in profits recorded in mid-July.
- The latest wave of the Business Distress Tracker also points to a more general uptick in activity in August. Indeed, businesses’ profits were down by 21% in August as a result of the coronavirus pandemic. This is a significant improvement on the 26% reduction in mid-July and marks considerable progress relative to the middle of April, when profits were down by 29%.
- The increase in profits has fed through into business sentiment. 39% of companies described current trading conditions as good in the latest wave of the tracker. This is up from 34% in the previous wave.
- One-fifth (21%) of businesses have now returned to pre-lockdown levels of production, as the economic recovery gathers pace. However, twice this share of businesses (41%) say they are least 6 months away from reaching pre-lockdown levels of production, highlighting that we are still in the relatively early stages of the recovery.
James Endersby, chief executive at Opinium said “It is promising to see a reduction in the proportion of workers whose salary and wages rely on government funds through the furlough scheme as we approach the end of the Job Retention Scheme. Once the scheme comes to an end next month, it is paramount to understand what the outlook is for those workers who are coming off the scheme. As this figure continues to decrease throughout the remainder of September and into October, it will be essential to monitor the proportion of workers facing reduced hours and reduced pay well beyond the end of lockdown and re-opening of the economy. The worst-case scenario will, of course, be rising unemployment across the country. It is far from certain whether the slow return to normal or the Job Retention Bonus will be enough to prevent this figure rising in the coming months.”
Pablo Shah, senior economist at Cebr said “The results from the latest wave of the Business Distress Tracker show that the UK has made considerable progress over the summer months in restoring economic activity. This has been facilitated by a combination of the stimulus measures – most notably the Eat Out to Help Out scheme – as well as the gradual lifting of lockdown restrictions.
“With that being said, there is a long way to go, with an estimated 2.0 million businesses still facing some risk of entering insolvency as a result of the coronavirus crisis. Moreover, the pace of recovery is likely to slow as we head into autumn, due to the withdrawal of government stimulus and a possible increase in coronavirus cases.”
Business Distress Tracker – Full findings
Business insolvency risks
Despite the progress in other areas of the Business-Distress tracker, insolvency risks continue to hang over millions of businesses. Indeed, over a third (34%) of businesses state that there is a risk of entering insolvency as a result of coronavirus-related disruption. This equates to 2.0 million businesses across the country. Within this are an estimated 325,000 businesses that feel there is a high risk of entering insolvency as a result of the crisis.
Figure 1 Risk of entering insolvency as a result of coronavirus-related disruption
Employment impacts
The proportion of companies needing to adjust their operations as a result of coronavirus-related disruption continues to diminish as the country advances along the road to recovery. Here, 73% of businesses stated that they have made adjustments in the most recent wave of the Opinium-CEBR Business Distress Tracker compared to 77% in early July.
The latest instalment of the tracker also uncovered a sizeable reduction in the proportion of workers currently furloughed (18% down from 23% in late July) as companies continue to prepare for the end of the Coronavirus Job Retention Scheme at the end of October. However, there have only been marginal changes in the numbers facing reduced working hours (25% down from 26% in late July) and receiving a reduced salary/wage (26% up from 25% in late July).
Business activity rates
After months of limited progress, business activity rates finally showed signs of a more pronounced pickup in the latest wave of the Opinium-Cebr Business Distress Tracker. Profits over the past 30 days were 21% lower as a result of the coronavirus crisis in late August / early September. This compares to a 26% reduction in the previous wave of the tracker in the middle of July. Although the hospitality and leisure sector saw one of the largest improvements, profits remain heavily suppressed in this industry, highlighting how capacity limitations and the costs of Covid-proofing continue to eat away at businesses’ margins.
Economic recovery
21% of businesses said that they had reached pre-lockdown levels of production in the latest wave of the Business Distress Tracker. Meanwhile, a further 27% expect to reach this point within the next 3 months. With that being said, this leaves a majority of businesses that anticipate needing three months or longer to fully recover. This includes more than a fifth (21%) that expect it will be more than a year before they reach pre-lockdown levels of production.
Figure 2 Cumulative share of businesses that have returned to pre-crisis production
