The BofE Monthly Decision maker panel is a survey of Chief Financial Officers from small, medium and large UK businesses. It has found that;
- 67% of businesses viewed overall economic uncertainty as high or very high in November, compared to 75% in October.
- In November, businesses estimated that their sales in Q4, 2020 would be 15% lower due to Covid – as in October.
- Expectations for sales in Q1, 2021 rose by 3 percentage points and by 6 percentage points for 2021 Q2 compared to attitudes in October.
- Employment is expected to be 6% lower than it would have been without Covid in Q4, 2020.
- The employment forecast for Q2, 2021 was 3% lower – an improvement on the drop of 7% that was expected in October’s survey.
Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown comments,
‘’The vaccine breakthroughs have given businesses a shot of confidence that the economy will warm up faster from the cold shock of Covid. Sales were still estimated to be 15% lower than they would have been without the effect of the pandemic in the fourth quarter of 2020, but businesses are now forecasting a swifter recovery in 2021 than they did in October. Although optimism is slowly seeping back into boardrooms, worries still reign with 67% of businesses saying the overall economic uncertainty remains high, compared with 40% at the start of the year.
Brexit, which had taken a back seat, is again starting to weigh on minds as we fast approach the end of the transition period with no deal in sight. Business have clearly sped up their preparations with 62% of firms saying they are as ready as they can be. However with still little idea of the terms under which they will do business next year, 27% of firms are only partially prepared, and 4% are still not at all ready.
The Bank of England’s forecasts for growth are based on the assumption that some kind of deal will be reached in the protracted Brexit negotiations, but even if there is an agreement, it had already forecast that leaving the EU will shave 1% off growth next year.
As firms have battened down the hatches to survive the pandemic and conserve cash for Brexit uncertainty, investment has plummeted by a quarter for the last three months of the year.
This is despite the fact that since the start of 2020 companies have raised £80 billlion in net finance, triple the amount raised than usual, with three-quarters of that from government backed loans. This is a time when firms need to plough money into adapting to the changes in consumer demand and the accelerated shift to digital business. The Bank of England has already warned that there could be a supply shortage if companies don’t invest in the transformation that is needed.
Businesses surveyed do expect the jobs situation to improve more quickly now. Lockdowns saw a rise in furloughed employees to 11% in November compared to 5% in October, providing breathing space for the retail and hospitality sectors in particular. Although businesses surveyed still said employment for Q4 would be 6% lower, that would reduce to 3% lower in the second quarter of next year. In October businesses were a lot more pessimistic, forecasting a level 7% lower for Q2 2021 than it would have been without the pandemic.
Given the huge contraction the economy has experienced, the UK still faces a long road to recovery with the potential of further setbacks along the way, if there are problems with the mass roll out of vaccines. But there is a lot more confidence across the business community that better times will slowly start to appear in 2021.’’