British businesses felt a stronger impact from COVID-19 than companies globally, according to a report from HSBC UK. The findings, drawn from a survey of over 2,600 companies in 14 countries and territories, show 83% of UK firms strongly felt the impact of COVID-19 compared to 72% of businesses globally. India (88%), Singapore (87%) and France (85%) were the only markets to report a greater impact from the pandemic.
UK firms are planning to significantly adapt their operations in the future, with almost three out of five (58%) admitting they could have done more to prepare. Before COVID-19, British businesses had focused on three main actions to build resilience; investing in technology, diversifying their business and consolidating their financial position.
To build resilience in the future, companies said they will focus on:
- Flexible working. More than two thirds (67%) expect to incorporate new working practices, most notably through allowing employees to work from home, operating from multiple locations and investing in tools to support collaboration.
- Technology. More than half of firms (55%) expect to invest in technology/innovation and a quarter identified it as their top priority.
- Supply chains. Businesses identified increasing supply chain security (58%) and increasing transparency/traceability (38%) as the two key areas to focus on when considering supply chains. They will focus on digitising more of their supply chain, diversifying to work with more suppliers and making their supply chain more environmentally sustainable.
- Sustainability. More than a third (37%) of firms say sustainability is more important than ever before and a significant majority (87%) agree that the need to review their operations will enable them to do so on firmer environmental foundations.
“In the last four months, British businesses have experienced a challenge unlike anything they have ever seen," said Amanda Murphy, head of Commercial Banking for HSBC UK. “A huge proportion of companies were forced to close overnight and their responses to the challenges that they have faced have been inspiring. We’ve seen customers innovate and diversify at a pace we’ve never seen before, showing tenacity, commitment and a true entrepreneurial spirit to survive despite the uncertainties. As business leaders look to the future it’s more important than ever to build resilience into their plans, to make sure they can navigate these new trading conditions.”
HSBC UK says it is urging businesses to take time to plan and consider a number of factors, including:
- Diversification. Being flexible and adaptable to change will be of paramount importance throughout the rest of the year. Many businesses have diversified to survive, whether it’s manufacturers adapting to build partitions for retail, or breweries producing hand sanitiser, firms have overhauled their usual business operations to keep trading and to support the response to the pandemic.
- Innovation. The pace of change of technology has been enhanced by the pandemic and businesses should consider how they can embed this into their normal operations. Restaurants and pubs have designed online or app-based tools at great pace to make sure they could keep serving customers and reopen safely.
- Working capital. It’s essential for businesses to understand their cash flow cycle and how they may be able to support smaller businesses within their supply chains. There have been examples of food retailers paying small business suppliers early to support them and make sure they can keep essential products on their shelves.
UK exports hit historic lows
In a further example of the struggles that British businesses are facing, UK manufacturing exports fell sharply in Q2 2020, according to the Lloyds Bank International Trade Index. The speed of decline was the fastest since data collection began in 1996, driven by the impact of coronavirus on both international supply chains and falling overseas demand for British goods and services.
The Index hit a new low of 34.6 for new manufacturing exports between April and June 2020, representing a dramatic decline from 46.8 in Q1 2020. The previous historic low of 38.8 was recorded in 2009 amid the global financial crisis. A reading below 50 signals a reduction in new export orders, while a reading above 50 indicates growth.
Of those manufacturers that reported a downturn in overseas orders, the vast majority (93%) attributed it to the impact of coronavirus, blaming the pandemic for shrinking demand, widespread business closures, and delays to export projects.
Basic metals (28.3) and automotive (31.5) exports were hit hardest, reflecting a fall in global demand for manufacturing components and the shutdown of car production in Europe. Exports of chemicals and plastics (41.1), including pharmaceuticals and healthcare products, fell at a slower rate than other manufacturing goods. This was in part due to forward purchasing by overseas buyers in expectation of delivery delays.
The end of the second quarter of 2020 saw early signs of international demand returning with June showing an increase in appetite for British consumer goods. In June, UK clothing and textiles (50.7) and other manufacturing (56.7) goods (which includes sports and leisure equipment), furniture, and luxury items such as jewellery manufacturing exports grew.
Meanwhile, UK services firms saw the sharpest drop in new overseas work since the inception of the Services New Export Business Index in 2014, measuring 29.2 in Q2, down from 42.7 in Q1. The fall was mainly due to international travel restrictions, with business-to-business (28.5), transport and communication (29.8) and technology (29.8) services all severely affected.
Challenging climate for UK exporters
Sharp economic contraction in the majority of UK export markets, including the European Union and North America was also recorded, driving a trade-weighted measure of global demand for British goods and services to a record low of 35.2 in Q2 2020.
China, after posting a reading of 42 in Q1 2020, was the only UK export market to see an increase in Q2 (52.6), as the country’s lockdown measures eased.
“The results demonstrate the full impact of the pandemic as swathes of the global trade markets shut down amid efforts to help contain the spread of the virus," commented Gwynne Master, managing director and global head of trade for Lloyds Bank Global Transaction Banking. “Export measures hit an all-time low in Q2 although we see small signs of recovery as early as May and into June. While it is too early to talk about the trajectory of recovery, it is encouraging to see enhanced external demand, signs that China’s economy is stabilising, and some UK consumer goods export growth in June. Government schemes and finance options continue to be made readily available, which will help UK exporters continue to trade, to position for a return to normality to international trade, and to prepare now for potential future disruption."
Like this item? Get our Weekly Update newsletter. Subscribe today