Coronavirus, the UK and business implications: the facts
COVID-19 was brought to the attention of the World Health Organisation on 31 December 2019, following a number of virus-caused cases of pneumonia in Wuhan, China. In the space of two months, coronavirus has since spread to 93 countries, infecting 98,787 people and counting.
The implications of the coronavirus outbreak reach far further than ill-health and disrupted travel plans. The lack of immunity and the current absence of an effective vaccine means that COVID-19 is spreading extensively. The consequential impact on labour, finance, supply and demand present a significant challenge for businesses across the world.
How has the UK government reacted?
The UK is well prepared for outbreaks of disease, having quickly reacted to pandemics in the past including SARS, swine flu and seasonal flu.
On 25 February, initial coronavirus advice for employers and businesses was released by the Government. This details the symptoms and spread of coronavirus while providing practical guidance on prevention, isolation and sick leave. The advice document fails to address any business implications of COVID-19 beyond employee infection and premises cleaning, such as financial hardship, supply issues or mass-quarantines. An updated document is expected following the Budget announcement.
On 3 March, the Government issued its official coronavirus action plan. This explains how the Government is approaching the outbreak by containing cases, delaying the spread, researching a vaccine and mitigating the impact on society and the economy. Should coronavirus become well-established in the UK, further actions could be taken, including school closures, mandatory home working and restrictions on large gatherings.
The action plan recognised that the Government is still uncertain how the virus will impact businesses. It advised owners to strengthen their own resilience by reviewing business continuity plans and staying up-to-date with the situation.
What do we know about the business implications of coronavirus?
While the Government is being cautious in its prediction of business impact, the media isn’t. Talk of large-scale quarantines, stock market crashes and mumblings of a recession is causing panic among the business community. Something that certainly hasn’t been helped with last week’s Flybe collapse.
Is disaster on the horizon or is the UK economy strong enough to hold its own? Let’s take a look.
The Organisation for Economic Cooperation and Development has warned that the global economy could grow at its slowest rate since 2009, due to the coronavirus outbreak. It cut UK GDP growth for 2020 to 0.8%, down 0.2% from November 2019. But what are the facts?
Rishi Sunak’s first Budget was delivered yesterday and had been rewritten to strengthen the UK economy against the impact of COVID-19. Big decisions on tax, spending and borrowing are to be delayed until autumn. Instead, Sunak sought to support those affected by the outbreak:
Rishi Sunak Chancellor of the Exchequer
We understand that people across the country are worried, but I assure you that we are taking firm action to support your families, your businesses and the public services on which you rely.
We are well prepared for this global threat and, as the wider economic picture becomes clearer, we stand ready to announce further support where needed.
Read more about the Budget in our article, which details what the announcement might mean for UK businesses.
The Bank of England has announced an emergency cut in interest rates from 0.75% to 0.25% to help banks support businesses affected financially by the outbreak and minimise the impact on the economy. The cut, alongside other changes, will free up an additional £190 billion for banks to lend. However, despite this, UK economic activity is still expected to “weaken materially” during the first part of this year. Major stock markets have already plummeted to levels not seen since 2008, and despite recovering, this ripple has demonstrated that nothing currently certain in the financial market. The best thing you can do is sit and wait while protecting current financial interests through schemes such as research and development tax credits.
Mass quarantines and ill health have significant consequences for the labour market, hampering recruitment, performance and output.
Big companies, including Wizz Air, are freezing recruitment as a precautionary method to combat weaker sales expected through the rest of the year. This, coupled with the uncertainty felt by employees about isolation and sick pay, will likely lead to an overall decline in talent movement in 2020.
In addition, the Government has predicted that one-fifth of the UK workforce could be off sick during the peak of the outbreak. This will undoubtedly affect performance and output across all industries.
And then we have job losses and redundancies. This month saw the collapse of Europe’s biggest regional airline, Flybe. Although this wasn’t wholly attributable to COVID-19, analysts have predicted the disease to accelerate the demise of many other airlines and businesses in 2020.
Supply and demand
We recently covered the impact of coronavirus on manufacturing in the automotive sector, with brands such as Jaguar Land Rover set to run out of car parts within weeks. Unfortunately, this sector isn’t alone.
Large-scale travel restrictions and quarantines in China have severely hampered manufacturing rates across the world, causing short-term product shortages for Amazon, Apple, Google and more. Even those not affected by manufacturing issues are still struggling with product supply, thanks to many carriers reducing routes and airlines cancelling flights.
There’s also the issue of demand. The travel, tourism and events industries are currently taking the brunt of the virus, but if infections continue to increase and the economy begins to weaken, we will likely see a reduction in overall consumer spending and demand for products.
It might not seem all that bad, with industries such as eCommerce, healthcare and groceries experiencing a spike in demand from people panic buying supplies and self-isolating. However, coupled with supply issues, this is leading to product shortages and placing additional pressure on an already stretched supply chain.
Businesses of all sizes are struggling with the consequences of coronavirus, but small businesses are set to be hit particularly hard. Impacted supply chains, reduced consumer demand, potential staff shortages and paying sick leave from day one will all have significant implications, including:
- Cash flow – reduced spending coupled with additional costs such as temporary staff and alternative suppliers could impact a business’ ability to pay rent, business rates and VAT.
- Self-isolation – the rules on self-isolation are expected to extend within the next couple of weeks, increasing the number of absent employees and reducing productivity, sales and morale in many businesses.
- Investment – reduced sales and unstable stock markets could reduce investment activity at what is usually a busy time of year (end of the financial year).
To help, the Bank of England has introduced a term funding scheme, with incentives for small and medium-sized businesses. The scheme is designed to encourage banks to offer cheap loans to companies through funds at or close to the bank rate for up to four years. This alone could provide more than £100 billion in funding.
“The Bank of England’s role is to help UK businesses and households manage through an economic shock. These measures will help to keep firms in business and people in jobs and help prevent a temporary disruption from causing longer-lasting economic harm,” said the Bank of England.
Currently, the Government is advising anyone returning from category 1 countries or developing any symptoms to self-isolate for 14 days. This advice is expected to extend within the next fortnight to anyone exhibiting cold or flu symptoms.
While Statutory Sick Pay (SSP) has been enhanced to cover employees from day one of absence, self-employed workers have no such luxury. There are an estimated five million self-employed workers in the UK – who, unless they have other forms of employment, are not eligible for SSP.
Accordingly, self-employed workers could suffer serious financial hardship from self-isolation, especially if they are a sole trader. Other than any income protection insurance, there is no government-backed recompense, however, the CIPD, the professional body for HR and people development, has called on the Government to create a hardship fund for those affected.
Key takeaway and action plan
As the Government rightly put, we don’t currently have enough information or crystal balls to predict the overall impact that COVID-19 will have on businesses and the UK economy. The best that you can do is to be prepared by:
- Protecting yourself and your employees – creating and implementing a plan that reduces minimises the risk of infection and reduces spread of the virus.
- Appointing a COVID-19 response team – creating a team that reviews and amends your business continuity plan, including your response to mass quarantines, damaged supply chains and reduced consumer spending or institutional investment.
- Increasing cash flow – implement plans that increase liquidity over the coming months, taking advantage of measures implemented in the Budget.
- Working with your supply chain – working with manufacturers and suppliers to overcome demand issues and maintain a steady flow of production.
- Keeping customers updated – panic buying coupled with reduced spending means that you need to communicate effectively with consumers to alleviate unnecessary concerns while encouraging normal spending.
- Staying up-to-date – following the latest advice at gov.uk/coronavirus.
We’ll also be posting any business-relevant information on coronavirus on our blog, so stay tuned for the latest.