The UK is in recession: how will SMEs cope?
Photo by Alev Takil on Unsplash
The importance of economic growth
Economic growth is essential for the UK, it’s people, and businesses to thrive. A better economy means businesses are making more money and profit. Which, in turn, leads to an increase in employment opportunities. Allowing businesses to pay more employees and shareholders, and pay them well. While businesses and people earn more, the UK government benefits from more money in taxes. Which means they can fund schemes to enhance communities, public education, invest in public services and increase the governments’ wages.
What happens during a recession?
While the UK is in a recession, the above benefits decline. Businesses make less profit, or none at all and are forced to close. As a result, employees are let go, and job opportunities reduce. With fewer employees making money, the government makes less money through taxes. And must now direct the resources they have towards trying to stimulate the economy.
For example, new schemes proposed by the government to help out businesses include the ‘Eat Out to Help Out Scheme‘. Universal credits for the self-employed, and the furlough scheme to maintain employees jobs, and support businesses through this trying time.
What fuelled the UK’s recession?
The prolific spread of Coronavirus across the world, including the UK, caused the government to act. By initiating a lockdown for its citizens.
During a period of uncertainty from April to July, the lockdown measures forced the UK into recession as the economy shrank by 20%.
The hospitality industry, manufacturing facilities and shops across the UK were forced to close and send workers home. As a result of uncertainty surrounding the pandemic, and less access to shops and services, household spending plummeted.
A recession arose as the economy declined after two consecutive quarters. The last time the UK experienced a recession was eleven years ago in 2009. If the recession continues, the UK could fall into a depression.
With the furlough scheme supported by the government set to end in October, it’s likely many businesses who are failing to cover their costs shall need to increase redundancies.
How and will SMEs recover?
In the hope of maintaining a profit, businesses shall also look to other areas to reduce costs. Causing CEOs across the country to identify alternative means to run their business. Such as weatherproof dome shelters, as opposed to renting office and business premises. And, cheaper workforces from abroad, such as call centres and virtual assistants from Asia opposed to the UK.
However, according to the Office for National Statistics (ONS), during the country’s transition out of lockdown, the economy has started to bounce back. Meaning, there may be hope still for small businesses to thrive, if they can hold on a bit longer.
For example, in May, as expected, the economy looked bleak, as it witnessed just a 1.8% growth. However, in June, the economy increased by 8.7%. Which potentially means the coming months look promising. Additionally, the Natwest UK Small Business PMI, revealed five times more of UK businesses had grown in July.
Moreover, The Bank of England believes the UKs recession will not have the impact people worry it will. Although to recover from the decrease in the economy, it shall take the UK’s businesses; it’s workers and clients some time to get back on their feet.
Furthermore, The Bank of England predicts the economy is set to experience a 9.5% slump this year. This is lower than the forecast before it which amounted to 14%.
Plus with some generous companies and lenders such as the UK challenger bank, who are willing to help out and still lend money to SMEs, there is still hope for businesses to remain open and to maintain their workforce until the recession ends.
