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  • BCC Quarterly Economic Survey Q2 2020: Chancellor must set out roadmap to recovery as UK economy endures historic  setback 

BCC Quarterly Economic Survey Q2 2020: Chancellor must set out roadmap to recovery as UK economy endures historic  setback 

The British Chambers of  Commerce has called for “swift,  substantial and immediate action” to bolster the economy, as its Quarterly Economic Survey (QES) - the UK’s largest  independent  survey of business sentiment and a leading indicator of UK GDP growth - found that UK economic conditions deteriorated at an unprecedented rate in the second  quarter of 2020.

Key findings:

  • Eleven of  the 14  key  service sector  QES  indicators  fall to their lowest level in the survey’s 31-year  history
  • The  percentage  balance  of firms reporting  increased  domestic and export sales is now substantially lower than the worst quarter of the 2008-09 recession 
  • Indicators for longer-term business performance drop to record lows as BCC sets out measures needed to begin UK’s economic recovery

The results of the  bellwether  survey of 7,700 firms,  employing over 580,000 people across the UK,  illustrates the full impact of the coronavirus pandemic on the UK economy in the second quarter of 2020. 

Historic setback

The service sector saw eleven of the 14 key indicators, including sales, orders and cashflow, drop to their lowest levels on record. 

  • The balance of service firms reporting increased  domestic sales dropped a record 80 points from Q1 2020 and is now  28  points lower than the worst quarter during the 2008-09 recession
  • The balance of service firms reporting  increased  export sales dropped a record 55 points (to –55%) and is now 42 points lower than the worst quarter during 2008-09 downturn
  • The balance of service firms confident that turnover will improve over the next year decreased from +38% in Q1 to -36% in Q2

Business-to-consumer  (B2C)  service sector firms such as retail, leisure and hospitality, were consistently more likely to report decreases across key indicators than business-to-business  (B2B)  service sector firms.

In the manufacturing sector,  nine of the 14 key indicators measuring activity in the sector dropped to  its lowest level on record. 

  • The balance of manufacturing  firms reporting improved domestic sales was 62 points lower than in Q1. For the export sales balance, it is 55 points lower
  • The balance of manufacturing firms that are confident turnover will improve over the next year decreased from +34% in Q1 to –31% in Q2

Looking ahead

Hopes of a swift economic recovery could be dashed, as forward-looking indicators – orders and investment intentions - dropped to record lows for both services firms and manufacturers. Business confidence dropped to its lowest level on record among services firms and declined to its lowest level since Q1 2009 for manufacturers. 

Cashflow – a key indicator of business’ health – is at its lowest level, with two thirds of respondents reporting worsening cashflow. 

With the economic impact of coronavirus laid bare in this survey, the leading business group has set out the measures firms need from the Chancellor’s economic statement due later this month, including:

  • Supporting  jobs through substantial reductions in Employer National Insurance Contributions 
  • Supporting  cash flow through wider business rate reliefs and extended loan and grant schemes
  • Supporting  young people through wage subsidies for apprenticeships and work experience
  • Supporting  investment  in productivity, people and carbon reduction through major incentives
  • Stimulating  demand, e.g. via targeted ‘restart vouchers’ for all UK households or a temporary VAT cut; and
  • Streamlining regulatory processes to make life easier for businesses without compromising safety or the environment.

Suren Thiru, Head of Economics at the British Chambers of Commerce (BCC), said:

“Our latest survey  highlights  the  extraordinary  contraction in UK economic activity in the second quarter as the coronavirus closed large parts of the economy. The vast majority of indicators dropped to historic lows, with declines far exceeding those seen at the height of the global financial crisis.

“The services sector suffered particularly badly, with consumer-facing firms most acutely exposed to economic headwinds from the pandemic. The manufacturing sector had a dismal three months, with collapsing demand and major disruption to supply chains weighing on the sector. The unprecedented slump in business cashflow is a key concern as it severely hampers  business  activity and staff retention.

“With lockdown restrictions steadily  easing, the second quarter is likely to prove to be the low point for the UK economy.  However, the collapse in forward looking indicators of activity suggests that unless action is taken, the prospect of a swift and sustained recovery may prove too optimistic.”

Responding to the findings, Director General of the British Chambers of Commerce Dr Adam Marshall said: 

"Our results demonstrate the need for swift  and  substantial action. The Government has one chance to jump-start the economy and business confidence over the coming weeks – and they must take it. 

“Business communities across the UK want to see a clearer, bolder roadmap to recovery that helps them restart, rebuild and renew. The UK cannot meander its way back to success in this era of uncertainty. The only way to re-kindle business and consumer confidence is to demonstrate an absolute and unshakeable focus on boosting the economy over the coming months.” 


Key findings in the Q2 2020 survey:

Services sector:

  • The balance of firms reporting increased domestic sales fell to -64% in Q2 2020, down from +16% in Q1.
  • The balance of firms reporting increased export sales dropped from 0% in Q1 to -55% in Q2. 
  • The balance of firms reporting improved cashflow fell from +3% to -56%
  • The balance of firms expecting their prices to increase has fallen from +28% in Q1 to +5% in Q2
  • The balance of firms looking to increase investment in plant and machinery fell to -41%, the lowest level on record
  • The balance of firms looking to increase investment in training fell from +15% in Q1 to -32% in Q2
  • The balance of firms confident that turnover will improve over the next year decreased from +38% to -36%. 

Manufacturing sector:

  • The balance of firms reporting increased domestic sales fell to -59% in Q2 2020, down sharply from +3% in Q1.
  • The balance of firms reporting increased export sales fell from +3% in Q1 to -52% in Q2. 
  • The balance of firms reporting improved cashflow fell from -6% to -47%
  • The balance of firms expecting their prices to increase has fallen from +33 in Q1 to +12% in Q2
  • The balance of firms looking to increase investment in plant and machinery fell to -42%, the lowest level on record
  • The balance of firms looking to increase investment in training fell sharply from +16% to -38%
  • The balance of firms confident that turnover will improve over the next year decreased from +34% to -31%

Ends

Notes to editors:

Spokespeople and business case studies are available for interview and a full QES is available from the press office.

About the QES

The British Chambers of Commerce’s Quarterly Economic Survey is now in its 31st year as the largest UK private sector survey of business sentiment. The survey is a leading indicator of UK GDP growth and is closely watched by policymakers, including HM Treasury and the Bank of England.

The results are based on the responses of 7,706 businesses online from 18 May to 12 June 2020.

QES results are generally presented as balance figures - the percentage of firms that reported an increase minus the percentage that reported a decrease. If the figure is a plus it indicates expansion of activity and if the figure is a minus it indicates contraction of activity.  A figure above 0 indicates growth, while a figure below 0 indicates contraction. For example, if 50% of firms told us their sales grew and 18% said they decreased the balance for the quarter is +32% (an expansion). If 32% told us their sales grew and 33% said they fell the balance is -1% (a contraction).

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