Nearly half (46%) of UK companies reported a decrease in domestic sales in the third quarter of the year, as businesses grapple with the economic impact of the coronavirus pandemic and resulting lockdown, according to the British Chambers of Commerce’s (BCC) Quarterly Economic Survey (QES).
Just 27% of firms reported an increase on the second quarter, the survey of 6,410 firms employing over 580,000 people found. A further 27% reported no change.
Some 47% of firms reported a fall in export sales, down from 72% in the previous quarter but still significantly worse than Q1, where only 21% of firms reported a decrease.
The hospitality and catering sectors, experienced the weakest performance, with two-thirds (66%) of hospitality and catering businesses reporting drops in sales and bookings over the last three months, compared with 46% of firms overall.
The balance of firms in the services sector reporting a rise in domestic sales increased to -25% in Q3 2020, up from -64% in Q2.
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In the manufacturing sector, the balance of firms stating increased domestic sales went up to -15% in the third quarter, up from -59% in Q2. The balance of firms reporting increased export sales increased to -26% from -52% in Q2.
Almost half of firms experienced a continued deterioration of cash flow — a key indicator of business health. In Q3, 45% reported a decline in cash flow, 21% saw an improvement in cash flow, and 34% reported no change.
Microfirms — small businesses employing nine people or fewer — were more likely to report a slump cash flow, with 51% of these firms reporting a deterioration.
The QES is the UK’s largest independent survey of business sentiment and a leading indicator of UK GDP growth.
Business confidence remained shaky with over a third (35%) of firms expecting their turnover to decrease in the next year. However, 41% said they expected their turnover to rise and nearly a quarter (24%) thought that it would remain the same.
Despite improvements in some indicators compared to Q2, business conditions remain close to historic lows. UK prime minister Boris Johnson’s announcement that a “second spike” of Coronavirus had hit the UK on 18 September and the subsequent introduction of new national restrictions and tightening of local restrictions paint a “concerning picture” for business conditions in Q4, according to the BCC.
In a separate survey of chief financial officers across the UK by the Bank of England businesses estimated that their sales in the third quarter of 2020 would be 14% lower than they would otherwise have been because of COVID-19.
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The pandemic was expected to lower employment by 8% in Q3 and 9% in Q4 this year, relative to what it would have been, according to the Bank of England’s September Decision Maker Panel (DMP) survey.
Suren Thiru, head of economics at the BCC, said: “Our latest survey indicates that underlying economic conditions remained exceptionally weak in the third quarter. While the declines in indicators of activity slowed as the UK economy gradually reopened, they remain well short of pre-pandemic levels with little sign of a swift ‘V’-shaped recovery.
“The manufacturing sector recorded the strongest improvements in the quarter, while consumer-focused services firms, where social distancing restricts activity, saw more limited gains. The persistent weakness in cash flow is concerning as it leaves firms more vulnerable to external shocks, including further restrictions.
“While the government’s Winter Economy Plan may provide a short-term boost, with restrictions tightening and the economic scarring already caused by the pandemic starting to crystallise, the resulting gains in economic output are likely to fade over the coming months.”
Adam Marshall, director general of BCC, called on the government to provide more support for the economy and “to strengthen measures to underpin business cash flow and jobs.”
He said: “The disappointing Test and Trace system must be improved to ensure as many businesses as possible can function through the winter and beyond.
“A Brexit deal must be reached to avoid yet more disruption. And above all, businesses need confidence and calm, clear communication to successfully navigate a tricky period ahead.”