Rangewell’s analysis of economic data during the Coronavirus pandemic to assess the future of business lending in the United Kingdom

Summary

It is clear from the Office of National Statistics reports that we are seeing a mountain range of economic recovery. When the UK has tight restrictions, business performance dips into canyons of low to no trade. As soon as restrictions are eased, we see a sharp upturn with peaks closer to February levels of business activity.

• All industries saw a dramatic drop in GDP at the start of the pandemic. Some sectors struggled to return to their February levels, while others saw their output bounce back to their pre-March levels by June. 
• As restrictions came into force throughout the UK at the start of November, the percentage of businesses experiencing a decrease in turnover increased sharply. 50% of businesses experienced a lower turnover to what is normally expected for the beginning of December. 

By the beginning of December, businesses, on the whole, had a greater belief that they would survive the next three months. This is supported by the fact that the majority of businesses have over six months’ cash reserves.

• 43% of businesses have high confidence that their business will survive, whilst 36% say they have moderate confidence and 9% say they have low confidence. Only 3% say they have no confidence whatsoever that their business will survive into the first three months of 2021.
• 5% of businesses have no cash reserves, 4% have less than one month, 22% have between one to three months, 16% have between four and six months and 36% have more than 6 months’ cash reserves.

The Government’s fully-guaranteed Coronavirus Business Interruption Loan Schemes have been hugely successful. 

• 31% of all businesses have said they received a government-backed loan during the pandemic. 
• Exuding the Future Fund, by the beginning of December, £68.1bn worth of CBILS were lent to 1.5m British firms.

Overview of business performance

All industries saw a dramatic drop in GDP at the start of the pandemic. Some sectors struggled to return to their February levels, while others saw their output bounce back to their pre-March levels by June. 

The GDP data clearly shows the peak and canyons of economic performance, with sharp recovery when restrictions are eased and dips when businesses are legally obliged to close.

Monthly output as a proportion of February 2020 output; February 2020 output = 100%. Number of people with at least one positive COVID-19 test result (either lab-reported or lateral flow device), by specimen date. Source: Office for National Statistics, GDP monthly estimate: PHE Weekly Cases data, people tested positive, UK Whole.

The ONS turnover data is significant as it is published fortnightly. The turnover estimates seem to be following the same trends as the ONS’ UK monthly GDP estimates. This is despite the fact that fortnightly turnover figures are published much earlier than the official monthly GDP estimates.

Using the ONS turnover data we can look ahead of the GDP estimates to conclude that when restrictions came into force throughout by the start of November, the percentage of businesses experiencing a decrease in turnover increased sharply. 

50% of businesses experienced a lower turnover to what is normally expected for the beginning of December. The percentage of businesses currently trading has fallen to the levels seen in the period of July to August, at 82%.

Source: Office for National Statistics, Business Impact of COVID-19 Survey (BICS) 

Business confidence and cash reserves going into 2021

43% of businesses have high confidence that their business will survive, whilst 36% say they have moderate confidence and 9% say they have low confidence. Only 3% say they have no confidence whatsoever that their business will survive into the first three months of 2021.

Real Estate has the greatest confidence, with 68% of firms in the sector reporting they are highly confident their respective businesses will survive the first quarter of 2021.

Source: Office for National Statistics, Business Impact of COVID-19 Survey (BICS) 

The ONS say that 5% of businesses have no cash reserves, while 4% have less than one month, 22% have between one to three months, 16% have between four and six months and 36% have more than 6 months’ cash reserves.

Manufacturing has the highest level of cash reserves, with 42% reporting reserves will last over 6 months, while hospitality reports that 8% of firms have no cash reserves whatsoever.

Source: Office for National Statistics, Business Impact of COVID-19 Survey (BICS) 

Overview of the government’s fully-guaranteed Coronavirus Business Interruption Loan Schemes 

31% of all businesses told the ONS they have received a government-backed loan during the pandemic. 

Hospitality report being the largest recipients of CBILS, whilst the arts report to being the least. This could be for the fact that The Arts and entertainment is one of the sectors to benefit from Grant Funding.

Source: Office for National Statistics, Business Impact of COVID-19 Survey (BICS) 

Excluding the Future Fund, by the beginning of December, £68.1bn worth of CBILS loans had been lent to 1.5m British firms.

The most successful program has been the Bounce Back Loan Scheme, accounting for 93% of all Government-backed lending. Of those who received a Bounce Back Loan, 4% have successfully gained a top-up.

Source: British Busines Bank, Covid-19 Loan Schemes