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BCC Quarterly Economic Survey Q3 2020: Nearly half of firms report UK sales decrease as businesses endure sustained cash crunch

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The British Chambers of Commerce’s Quarterly Economic Survey (QES) – the UK’s largest independent survey of business sentiment and a leading indicator of UK GDP growth – found that business conditions remained weak in the third quarter of 2020, despite much of the economy reopening.

The bellwether survey of 6,410 firms, employing over 580,000 people across the UK, revealed that, while key indicators have improved from historic lows in Q2, they remain significantly lower than before the pandemic struck. Business to consumer firms, including hospitality, fared worst.

Key findings:  
· Almost half (46%) of firms reported a decrease in domestic sales, while just 27% reported an increase on the previous quarter
· Two-thirds (66%) of respondents in hospitality and catering saw decreases in sales and bookings
· Indicators, including cash flow, remain at levels comparable to the 2008-09 recession for firms in the services sector

Business conditions

Overall, while this quarter has seen an improvement compared to the unprecedented percentage of firms reporting decreases in domestic and export sales in Q2, the majority of firms continue to report decreases or no change in sales in Q3.

· Nearly half of firms (46%) reported decreases in domestic sales, down from 73% in Q2.
· 27% of firms reported an increase in domestic sales. 27% reported no change
· 47% of firms reported decreases in export sales, down from 72% in Q2 but still substantially worse than Q1, where only 21% of firms reported a decrease
· Nearly a quarter (24%) of firms reported increases in export sales, up from 9% in Q2


Business to consumer (B2C) firms, particularly those from the hospitality and catering sectors, saw the weakest performance, with two-thirds (66%) of respondents in hospitality and catering reporting decreases in sales and bookings in the last three months, compared with 46% overall.

In the services sector, the balance of firms reporting increased domestic sales increased to -25% in Q3 2020, up from -64% in Q2. The balance of firms reporting increased export sales increased to -31% in Q3 from -55% in Q2.

In the manufacturing sector, the balance of firms reporting increased domestic sales increased to -15% in Q3 2020, up from -59% in Q2 2020. The balance of firms reporting increased export sales increased to -26% from -52% in Q2.


Cash flow

Cash flow, a key indicator of business health, continued to deteriorate for almost half of firms. In Q3, 21% of firms reported an improvement in cash flow, 34% reported no change and 45% reported a deterioration. In Q2, 11% of firms reported an improvement, 25% no change, and 64% a deterioration.

Micro firms were more likely to report worsening cash flow, with 51% of these firms reporting a deterioration.

In the services sector the balance of firms reporting improved cashflow increased to -30% from -56%. After the lowest level on record in Q2, this balance is the lowest level since Q4 2008.

In the manufacturing sector, the balance of firms reporting improved cashflow increased to -18% from -47% in Q2.


Investment and confidence

Over a third of firms (37%) continue to report decreased investment in plant, machinery and equipment, highlighting longer-term concerns for the economy as many businesses look to downsize. This follows Q2, which had the largest proportion of firms revising down investment in the history of the QES dataset.

Nearly half (46%) expected no change in plant, machinery and equipment investment, up slightly from 39% in Q2. Just 17% of firms plan to invest, up slightly from 9% in Q2 but remaining historically low.

41% of firms said they expected their turnover to increase over the next 12 months, while a third (35%) still expected it to decrease. Nearly a quarter (24%) expected that it would stay the same.

In the services sector, the balance of firms looking to increase investment in training increased from -32% in Q2 to -17% in Q3. The balance of firms confident that turnover will improve over the next year increased from -36% in Q2 to +1% in Q3.

In the manufacturing sector, the balance of firms looking to increase investment in training increased to -19% in Q2 from -38% in Q3. The balance of firms confident that turnover will improve over the next year increased to +7% in Q2 up from -31% in Q3.



Looking ahead

Despite improvements in some indicators compared to Q2, business conditions remain close to historic lows.

Most of the survey fieldwork took place before the Prime Minister’s announcement that a ‘second spike’ of Coronavirus had hit the UK on 18 September.

The rise in Coronavirus cases from 7 September, the subsequent introduction of new national restrictions and tightening local restrictions paint a concerning picture for business conditions in Q4.


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

“Our latest survey indicates that underlying economic conditions remained exceptionally weak in the third quarter. While the declines in indicators of activity slowed as the UK economy gradually reopened, they remain well short of pre-pandemic levels with little sign of a swift ‘V’-shaped recovery.

“The manufacturing sector recorded the strongest improvements in the quarter, while consumer-focused services firms, where social distancing restricts activity, saw more limited gains. The persistent weakness in cash flow is concerning as it leaves firms more vulnerable to external shocks, including further restrictions.

“While the government’s Winter Economy Plan may provide a short-term boost, with restrictions tightening and the economic scarring already caused by the pandemic starting to crystallise, the resulting gains in economic output are likely to fade over the coming months.”



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

“Our findings clearly demonstrate that business conditions remain fragile in the face of uncertainty, with the prospect of a difficult winter to come.

“It is time to be direct.

“The economy will need more support, over and above the Chancellor’s welcome recent efforts. Ministers must stand ready to provide that support, and to strengthen measures to underpin business cash flow and jobs.

“The disappointing Test and Trace system must be improved to ensure as many businesses as possible can function through the winter and beyond.

“A Brexit deal must be reached to avoid yet more disruption.

“And above all, businesses need confidence and calm, clear communication to successfully navigate a tricky period ahead.”

  
  
  
Ends   


Notes to editors:   
· Spokespeople and business case studies are available for interview and a full QES is available from the press office.    

· A full copy of the Q3 QES data is available from the BCC 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 6,410 businesses online from 24 August to 14 September 2020.   
     
QES results are generally presented as raw percentages or 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).    


About the British Chambers of Commerce   
  
The British Chambers of Commerce (BCC) sits at the heart of a powerful network of 53 Accredited Chambers of Commerce across the UK, representing thousands of businesses of all sizes and within all sectors. Our Global Business Network connects exporters with over 60 markets around the world. For more information, visit: www.britishchambers.org.uk