Surviving the UK’s deepest recorded recession

The current recession, triggered by the Covid-19 lockdown, is the worst of any experienced by the G7 nations as well as being the biggest UK recession since records began in 1955.

Despite growth returning, the effect of such a deep fall in GDP will have an ongoing effect for some time to come. The Bank of England has predicted that the economy will fall by 9.5 per cent overall in 2020 and as the furlough scheme comes to an end more job losses are inevitable.

The ONS survey results

In June 2020, the Office for National Statistics (ONS) released a report entitled ‘Coronavirus and the impact on output in the UK economy: June 2020’. This looked at the production, services and construction industries in the UK between May and June 2020 as the early impact of Covid-19 was felt.

June’s GDP was 17.2 per cent below the February 2020 level despite having risen 8.7 per cent since the previous month. The rise corresponded with an easing of the lockdown restrictions, allowing some businesses to resume working.

Industries affected 

There were record falls in services, manufacturing and construction during April. There was growth in both May and June 2020, however, all sectors remained at far lower levels than in February.

Service industries output by the time of the report was down 17.6 per cent from February, despite recovering 7.7 per cent. Production industries grew by 9.3 per cent but remained down 11.6 per cent overall.

The construction industry was hardest hit at 24.8 per cent below February figures, despite a 23.5 percent recovery from the lowest level reached.

Overall, services make up almost 80 per cent of the UK economy, with production at 13.6 per cent and construction at just over 6 per cent.

The industries most affected by the pandemic are unsurprisingly the food and drink sector, the retail sector, aviation and personal services such as hairdressing.

Consumer spending was down by over 23 per cent in the second quarter, bad news for an economy that relies more heavily than most on consumers. Towards the end of this quarter, a bounce-back began as factories reopened, construction accelerated and shops opened. Despite this, June’s GDP was still more than 15 percent down from the February level.

Government response to the UK recession 

The government response to the pandemic has been deemed slow in comparison with other European countries, with lockdown imposed later and, critically, for longer. Short-term aid, such as grants, loans and the job retention scheme will draw to a close, leaving businesses to fend for themselves.

While government assistance may help short-term survival, in the long-term smart business teams will be looking to thrive without aid. For many, the ending of the furlough scheme will mean the loss of jobs as management seeks to slim down organisations.

Steven Bryan of Bryan & Armstrong states ‘many furloughed employees are concerned about whether there will be a job to go back to when the scheme ends.’

A survey carried out by the Chartered Institute of Personnel and Development found that 33 per cent of businesses questioned plan on making job cuts in the third quarter of the year. Whilst many businesses also believe they will be taking on new employees, job losses are expected to far exceed new positions. 

Business survival following the recession

Businesses that survive the current difficulties will need to plan carefully for the next couple of years, particularly bearing in mind the risk of continuing whole or partial lockdowns. Those relying on supply chains and overseas trade may have to be particularly innovative in overcoming obstacles.

However, going through a recession can be beneficial for a business, allowing the management team to focus on priorities and emerge from the crisis leaner and more efficient. 

Adapting

Businesses will need to prioritise consideration of the likely trading conditions and ensure they adapt to offer goods or services effectively in the light of any restrictions. Making life easy for consumers is essential. Most businesses have already implemented measures to comply with new regulations, but going forward they will need to ensure that this is sustainable as well as being acceptable to customers or clients.

Continuity plans

With the future still so uncertain, continuity plans should be examined and revised. The ability to switch the way a business operates or deal with closures of premises overnight could be the difference that saves an organisation from collapse. Organisations that are well-prepared and agile will have the advantage of being able to carry on operating seamlessly and will be well placed to pick up new business during future disruption.

Communication is a big part of an effective continuity plan, both with management and workers and with consumers or clients. Clear procedures should include details of who will pass on information and to whom, who is in charge of different aspects of the continuity plan and its implementation and who should have final approval of any customer-facing communiqués.

Commercial strategy

Looking beyond Covid-19, agility will still be of huge benefit. The pandemic is an opportunity for everyone to examine the way they operate and make sure they are putting themselves in the best position to cope with future changes.

Technology will be a huge part of this, enabling businesses to be leaner and more efficient. The right marketing is essential, and while the post-recession period is likely to be challenging, if businesses are able to find new consumers or clients they may well be able to hold on to them once normal service is resumed.

Legal help

Business health depends on strong contracts and a good understanding of rights and responsibilities. If difficulties arise, well-drafted, bespoke contracts allow a business to rely on clauses tailored to their unique requirements and to seek enforcement in the courts if necessary.

If difficulties arise, seeking expert legal help can ensure a business salvages as much as possible from a situation, for example, where a supplier defaults on a contract. 

Read our article on Breach of contract explained: The 5 questions you need to ask.

In summary

The current crisis will be the catalyst needed for some businesses to examine their structure and make beneficial changes. For those willing to adapt, the future can offer the opportunity to create a new, leaner organisation, ready to take advantage of gaps in the market as less agile businesses flounder.

Those who can survive and even thrive during turbulent times are likely to do well once stability returns. The essential lesson to be learned is to constantly evaluate a business and examine what is going well and what could be improved upon as well as looking forward to potential hazards and opportunities. 

At Lincoln & Rowe we understand the importance of helping our clients keep their business running smoothly. We can assist on your options if your business is financially damaged because of Covid-19. 

We have wide-ranging experience in commercial law and were named as the ‘Commercial Disputes Specialists of the Year” in the Corporate Livewire Innovation & Excellence Awards 2020 as well as ‘Boutique Litigation Law Firm of the Year’ in both the 2019 and 2020 Global Awards by ACQ5. Partner, Dipesh Dosani, was named Commercial Litigation Lawyer of the Year in 2019 and 2020 in the ACQ5 Law Awards. 

If you would like to talk to one of our expert legal team about any queries you may have regarding insolvency or liquidation, contact the author, Dipesh Dosani, or call the team today on 020 3968 6030 and we’ll be happy to help.

The above information is for general guidance on your rights and responsibilities and is not legal advice. If you need more details on your rights or legal advice about what action to take, please contact a legal advisor.