The UK Economic Impacts of COVID-19 and What Businesses Can Do

It’s been over four months since the UK entered lockdown and the economy is feeling the effects of the coronavirus pandemic in addition to the significant humanitarian impact.

Dun & Bradstreet analyses risk and opportunities for businesses on a country-by-country and industry-by-industry basis, looking at factors such as cross-border trading, macro-economic environment, credit risk, supply chains, and the political landscape. Since January, when COVID-19 became a major threat to global supply chains, we have downgraded 111 of the 132 countries we cover.

The country risk rating for the UK is at an all-time low since we first started analysing it in 1994 and our outlook remains ‘deteriorating’, albeit slightly improved from the ‘rapidly deteriorating’ outlook of a couple of months ago. The US has also suffered a two-quarter downgrade, as has France, and Italy is another country we have downgraded (by three quartiles) as a result of the catastrophic impact of COVID-19.

While many of the 111 countries have all experienced tragically high COVID-19 death tolls, economies in countries that have been less impacted from a health perspective have also been downgraded due to the wider repercussions such as lower commodity prices, reduced export potential and supply chain disruption.

How is the UK economy faring?

From an economic perspective, the virus has resulted in widespread disruption to businesses around the country with many closing their doors completely during lockdown, causing the economy to contract by a significant 25% in March and April combined. Although there have been some companies who have seen a short-term increase in demand during the lockdown, these have been in the minority. Businesses such as takeaway delivery services such as Deliveroo have seen a notable increase in orders, as has online grocer Ocado and Sports Direct has similarly been inundated with online orders for gym equipment.

The latest data shows a major impact across industries such as retail, hospitality, manufacturing, and construction. The unsteady terrain that the majority of businesses are experiencing is causing an increased level of risk coupled with the impact of wider economic downturn. Businesses that are reliant on their customers being physically present are suffering the hardest such as the accommodation and food services industries.

Traditional ‘bricks and mortar’ high street retailers were already feeling the impact of an increase in online shopping even before COVID-19 and the pandemic appears to have exacerbated this further with May’s retail ONS figures falling by 13% when compared with February’s figures which pre-date the impact of the pandemic. The fate of traditional retail is very much dependant of whether people return to the high-street in the same way as before, which we are now beginning to see, with reports of footfall up 45% with the re-opening of non-essential shops across England, albeit against a very low comparison base.

Meanwhile in manufacturing, output fell in the three months to April by 10.5%, with 12 out of 13 sub-sectors falling. The manufacture of transport equipment saw the most significant decrease at 28.3%, however, the one sub-sector which did see growth was pharmaceuticals, which increased by 15.4%.

The longer-term impact

With furlough schemes extended until the autumn, the impact on employment and longer-term working practices will not become evident straight away. However, if people are made redundant as furlough winds down and consumer demand slows, even ‘digital-ready’ businesses will begin to face challenges.

The economy suffered a GDP contraction in Q1 and we will see an even bigger drop in Q2 given the lockdown measures. For 2020, the UK is on track to contract by a sizable 8.5%, worse than during the financial crisis. In this light, economic performance in Q3 will be a critical indicator of how quickly the economy will rebound. We are currently forecasting growth to return in Q3 that will continue into 2021.

However, the future state of the economy will also depend on COVID-19’s progression over the coming months. Our baseline scenario is based on the assumption that we won’t see a second wave at the same magnitude as the first one. The death toll may rise but our baseline scenario is that this won’t reach the levels in March and April while at the same time, the government will be reluctant to re-introduce far reaching lockdown measures.

Managing economic risk

The speed of an economic recovery is yet to become clear, but with a recession guaranteed, businesses are facing significantly increased risk and disruption for the short to medium--term at least.

To help manage through economic turbulence, having a full and transparent view of all business relationships and access to the latest data and analytics will be key to effectively identifying and crucially, managing potential risk.

Having a clear picture of the wider macro-economic environment both in the UK and other markets is important context to inform decision-making, alongside factors such as an analysis of supply chain risk and political landscape.

Knowing the wider environment you are working in is key to effective risk management, and having insight into other markets can also be key to finding new opportunities as well as mitigating risk. Finding and capitalising on new markets to buy from or sell to could be critical to supporting economic recovery and business survival.