What’s really going on with the UK economy? The Bank of England has warned of a slow recovery from the Covid-19 crisis and predicted that GDP will not return to pre-pandemic levels until at least the end of 2021. It also expects unemployment to double before the year is out. A number of well-known businesses, including airline British Airways, restaurant chain Pizza Express and retailers WH Smith and Dixons Carphone, have already announced large-scale redundancies.
On the face of it, the news stories make the UK’s economic situation look pretty bleak. Equally, however, there are reasons for optimism. The Bank of England has said that Covid-inflicted damage on the UK economy is less severe than it initially feared – it expects the economy to shrink by 9.5% in 2020, a smaller decline than the 14% contraction it forecast in May. Also, a recent meeting of the CIMA Members in Practice Panel highlighted that many businesses have coped well during the pandemic, with some emerging in an even stronger position than before.
The mixed messages reflect the real differences that we see in the economy. While certain businesses – especially those that rely on face-to-face interaction with consumers – have been more heavily impacted by the pandemic, others have capitalised on their digital business models to grow their markets and expand their reach. For example, many businesses operating in the ecommerce and software development spaces are prospering.
Fundamentally, Covid-19 has served to accelerate existing trends. Companies with old-fashioned business models that were struggling prior to the pandemic face even greater challenges now. For some, there is a question mark around whether they can remain a going concern – hence the issue of viability is attracting the close attention of auditors. On the other hand, companies that operate within the digital economy are eagerly seizing the new opportunities that have emerged.
While the green shoots of recovery are definitely sprouting, the road ahead is paved with potential pitfalls. Firstly, a second wave of Covid-19 in the autumn may derail the nascent upturn. Secondly, Brexit remains a potential threat to UK businesses – even though many do not appear to have it on their radar right now as they focus on recovering from Covid-19. An absence of practical support from the government is not helping those that are trying to prepare for Brexit, either. Businesses urgently need clarity around important issues such as customs duties and VAT.
It’s right to be cautious about the future, but there is also plenty to be positive about. As consumer behaviours continue to evolve amid the pandemic, companies that adapt will do very well. In fact, this could be the start of a new era innovation for UK businesses – an era that drives growth for the economy overall.
Regional Vice President, UK and Ireland
Association of International Certified Professional Accountants