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UK business conditions ‘historically poor’ even as firms regain confidence

·3-min read
All key indicators for business remain in negative territory, according to a quarterly survey. Photo: Tolga Akmen/AFP/Getty
All key indicators for business remain in negative territory, according to a quarterly survey. Photo: Tolga Akmen/AFP/Getty

Business conditions remained “historically poor” in the first quarter of 2021 amid the third lockdown even as business confidence has been boosted thanks to a strong vaccine rollout and the government’s roadmap to ease restrictions, a new report found.

The British Chambers of Commerce’s (BCC) Quarterly Economic Survey, published on Thursday, found that all the key indicators for business conditions remained in negative territory and well below pre-pandemic levels in Q1.

About 40% of firms reported a decrease in domestic sales with business to consumer firms seeing the largest falls.

83% of hospitality and catering firms reported decreases in Q1,up from 79% in Q4.

Sectors with more scope to continue their operations through the pandemic, such as by remote working, saw some improvement, although this did not come close to pre-pandemic levels.

35% of firms in professional services and marketing and media reported increased sales in Q1, up from 29% and 28% respectively in Q4 2020. 

In the services sector, the balance of firms reporting increased domestic sales was -18% in Q1 2021, up from -24% in Q4 2020. In the manufacturing sector, the balance was -6%, up from -9% in Q4 2020.

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Cash flow continued to deteriorate for 41% of firms in Q1, with those in hotel and catering hit the hardest. In the services sector, the balance of firms reporting improved cashflow increased to -26% from -28% in Q4. 

"Despite improvement from the lowest levels on record, this balance is still at a level comparable to the 2008-09 recession," the report said.

In the manufacturing sector, the balance of firms reporting improved cashflow decreased to -17% from -15% in Q3.

Confidence was a somewhat bright spot. 55% of firms said they expected their turnover to increase over the next 12 months, the highest since Q1 2020, "the last pre-pandemic quarter" the report said, and an increase from 40% in Q4.

Suren Thiru, BCC head of economics said: "The marked improvement in business confidence suggests that the expected first quarter contraction in output will be the nadir for the UK economy in 2021."

However, she warned that the "economic scarring from COVID-19 may mean that the recovery is dramatically uneven across different sectors, locations and cohorts of people."

Meanwhile co-executive director of the BCC, Hannah Essex, said: "The hope for growth represented in our findings is contingent upon the government continuing to hit its target dates for reopening the economy, successfully rolling out the coronavirus vaccines and providing ongoing support to businesses who have suffered throughout the crisis."

"Particular emphasis must be placed on those sectors which face continued uncertainty about when they will be able to fully trade again," she added.

Earlier, the Office for National Statistics said further analysis suggested that UK GDP grew by slightly more than expected in the final quarter of 2020. The UK economy expanded by 1.3% in the final three months of last year, the ONS said, up from an initial estimate of 1% growth.

A return to lockdown at the start of 2021 means the economy is likely to shrink again in the first quarter but economists predict a strong rebound as restrictions ease.

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