Pandemic impacts felt across the British economy
Our new research highlights how the COVID-19 pandemic has had very different impacts on individual parts of the UK economy.
Figures from our Spring 2021 Santander Trade Barometer illustrate how hard the pandemic and resulting restrictions have been for businesses in sectors such as travel and hospitality, while also looking at the industries that have been negatively affected by supply-chain disruption and the transition to the UK’s new trading relationship with Europe.
Declining business performance
Across the whole UK economy, 39% of businesses say their performance over the past 12 months has deteriorated. Behind these aggregate figures, however, there are some stark sectoral differences. The series of lockdown policies that have been implemented by the UK Government since the start of the pandemic in March 2020 have had a significant impact on companies in travel, tourism, and leisure. Here a clear majority of businesses (61%) say their performance has worsened over the past year.
The pandemic’s impact has also been felt in the manufacturing industry, where 46% of businesses say performance has declined. Many manufacturers were forced to suspend activities during the first lockdown. They’ve since returned to normal operations, albeit while coping with supply chain issues and the consequences of the UK’s departure from the European customs union.
Among all businesses, just 30% say their performance has improved since early 2020 but companies in the wholesale and retail sector have bucked this trend, with almost half (49%) reporting a slight increase in performance. This is at least partly because retailers of essential goods such as food were able to remain open throughout the crisis, with sales for many businesses rising because of the closure of restaurants, pubs and cafés.
Notably, while just 19% of UK businesses say they’ve not been negatively affected by the pandemic, this figure rises to 29% among wholesalers and retailers.
Optimism over future growth
Despite the challenges faced so far during the pandemic, the roll-out of the UK’s vaccination programme and the Government’s roadmap out of the pandemic are providing grounds for optimism. Almost two-thirds of all businesses (64%) say they expect to grow in the coming three years, up from 59% in the Autumn 2020 Trade Barometer.
Again, businesses in travel, tourism, and leisure lag behind other sectors of the economy, with only 60% expecting growth between now and 2024, no doubt reflecting uncertainty about the reopening of international borders in the summer.
With a no-deal Brexit averted and an end to supply chain disruption in sight, it is not surprising that optimism among businesses in transport and logistics is relatively high. Here, 72% of companies expect to grow in the next three years.
The importance of international trade
For businesses in many sectors, a recovery in global markets will provide a key element of their growth strategy in the months ahead. While 56% of all businesses say that international economic prospects will be a key driver of future growth, this rises to 63% in both manufacturing and the information and communication technology (ICT) sectors.
And while 26% of all companies say that the diversification benefits offered by international trade have become more important as a result of the pandemic, this rises to 31% among travel businesses and 32% among ICT companies.
There are however concerns about the trade deal struck between the UK and the European Union. A third (32%) of transport and logistics businesses expect this to result in higher costs and more bureaucracy (against an all-sector rate of 23%), while almost half of wholesale and retail companies (47%) say their tax and tariff bills will rise (overall average 35%).
COVID-19 pandemic impact across the regions
The research also highlights regional differences in business sentiment and performance. While 39% of all businesses said performance had worsened in the past 12 months, the rate was 45% in the South West of England, perhaps reflecting the greater proportion of tourism businesses in the region.
The highest levels of confidence in future growth can be found in Scotland, where 74% of businesses expect to expand in the next three years against 64% across the whole of the UK. This difference could reflect the fact that Scotland has suffered a lower rate of COVID-19 cases than Britain as a whole1 and might be better placed to reopen sooner than England, Wales or Northern Ireland.
Looking at the year ahead, businesses in London are most concerned about the potential negative impact of a domestic economic slowdown, with 55% of companies expecting this to hamper their performance, against 48% of all businesses.
Companies in the Capital are more likely to be planning investment in areas such as digital transformation (36% against 24% of all businesses) and sustainability (23% versus 17%) in the next 12 months in order to generate growth.
Businesses are considering a number of diversification strategies in response to the pandemic, for example, companies located in the Midlands are more likely to be considering expanding their product range or service offering (31% against 26% of all businesses).
Meanwhile, companies in the Midlands are more likely to think it has become easier for UK firms to win new business outside of the EU following Brexit (40% versus 35%).
How we can help
Santander has a team of sector experts, who work with businesses to provide both financial and non-financial solutions tailored to businesses in their respective sectors. The team understand the different challenges that businesses in their sectors are facing and work with their own ecosystem of specialists to support businesses in overcoming these challenges. The team also work closely with our international specialists to enable us to help businesses with both their domestic and international growth. As well as our sector expertise, our relationship teams across the UK are able to assist businesses with a range of solutions to help realise their growth ambitions, whether that’s in the UK or in overseas markets.
If you need any help, please contact us on: international@santander.co.uk
For more information, please read the full Trade Barometer report