U.K. Firms’ Cash Flows Weaken as Economy Limps Out of Lockdown

Bookmark

U.K. businesses saw their financial position worsen in the first quarter as the third major lockdown in a year took its toll on an already weakened economy.

A survey by the British Chambers of Commerce found 41% of firms saying their cash flows deteriorated in the three months through March, while one in five reported an improvement. The situation was worst for hotels and catering companies, which have mostly been closed since early January. Eight out of 10 businesses in that sector reported a downturn in their finances.

Confidence climbed, however, boosted by Britain’s vaccine rollout and planned steps out of the harshest restrictions. Fully 55% of respondents said they expect their turnover to increase in the next year, the highest level since the pandemic hit the country in early 2020. Professional services and marketing or media firms were most likely to expect a pickup.

“The marked improvement in business confidence suggests that the expected first quarter contraction in output will be the nadir for the U.K. economy in 2021,” said Suren Thiru, head of economics at the BCC. “However, the economic scarring from Covid may mean that the recovery is dramatically uneven across different sectors, locations and cohorts of people.”

Government figures Wednesday showed business investment in the fourth quarter grew much more strongly than previously estimated, and Chancellor of the Exchequer Rishi Sunak struck an upbeat note in comments broadcast later in the day.

“I am confident that we’re in a good position to recover strongly,” Sunak said in an ITV interview. “Businesses have about a hundred billion pounds ($138 billion) of excess cash that they’re sitting on” and are “raring to go.”

The BCC surveyed 6,103 firms, which employ almost 1 million people across the U.K., from Feb. 15 to March 11. Other findings include:

  • All key indicators of immediate business conditions remained negative and well below pre-pandemic levels
  • 40% of firms said they saw domestic sales decline, 32% saw no change and 28% reported an increase. Businesses selling to consumers saw the largest falls
  • Companies with more scope to operate through the restrictions, including by shifting to remote working, saw some improvement
  • Almost a third reported decreased investment in plant, machinery and investment, marking a slight improvement from the end of last year. The survey largely done before Sunak announced tax incentives to bring forward business investment at his budget on March 3

©2021 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.