Latest results from the Decision Maker Panel survey - 2020 Q3

The Decision Maker Panel (DMP) is a survey of Chief Financial Officers from small, medium and large UK businesses. We use it to monitor developments in the economy and to track businesses’ views. This is a summary of the results up until August 2020.
Published on 17 September 2020
The Decision Maker Panel (DMP) is a survey of Chief Financial Officers from small, medium and large UK businesses. We use it to monitor developments in the economy and to track businesses’ views. This is a summary of the results up until August 2020.

Impact of Covid-19 on UK businesses

Businesses reported a substantial impact from Covid-19 in Q2. Respondents to the DMP survey estimated that sales in 2020 Q2 were 30% lower than they otherwise would have been. Employment was reported to have been 5% lower and investment 33% lower (Chart 1). While still very large, those impacts were less negative than had been previously expected. For example, in the May DMP survey, Covid-19 had been expected to lower sales in 2020 Q2 by 42%, employment 6% and investment 43%.

Chart 1 Businesses continued to expect Covid-19 to have a large impact on their sales, employment, hours worked, investment and costs over the next year (a)

Footnotes

(a) The results are based on the questions: ‘Relative to what would otherwise have happened, what is your best estimate for the impact of the spread of Covid-19 on the sales/employment/average hours worked per active employee/capital expenditure of your business in each of the following periods?’; and ‘Approximately what percentage of your employees fall into the following categories in each of the following periods? (i) Still employed but not required to work any hours (eg ‘on furlough’), (ii) Unable to work (eg due to sickness, self-isolation, childcare etc.), (iii) Continuing to work on business premises, (iv) Continuing to work from home’. Data for 2020 Q2 are from the July DMP survey, except for average hours which is from August. Data for 2020 Q3, 2020 Q4, 2021 Q1, and 2021 Q2 are from the August survey. The effects on total hours worked are calculated from responses to the questions on employment, average hours and percentage of employees on furlough. Employees on furlough are assumed to work zero hours. Data on the impact of Covid-19 in 2020 Q1 have not been collected in the DMP. Data shown for Q1 are absolute changes in aggregate ONS data for private sector output, business investment and total hours worked between 2019 Q4 and 2020 Q1. The impact on employment is assumed to be zero (as it rose in Q1). The impact on unit costs is also assumed to be zero in Q1).

Sales were reported to have begun to recover in 2020 Q3 with a further gradual recovery expected over the coming quarters. In the August survey, Covid-19 was expected to lower sales by 14% in Q3, 12% in Q4, 10% in Q1 of next year and 5% in 2021 Q2 (Chart 1). Investment was expected to recover more slowly than sales and to be around 12% below what it would have been in Q2 of next year (Chart 1).

The impact of Covid-19 on employment was expected to be more persistent than the effect on sales. Covid-19 was expected to have a larger adverse impact on employment in the second half of this year than in 2020 Q2, reaching a peak impact of 8% in 2020 Q4 (Chart 1). After that, the effect on employment was expected to start to diminish to 5% by 2021 Q2. The expectation of additional job losses in 2020 H2 may at least partly reflect the wind-down of the Government’s Coronavirus Job Retention Scheme (CJRS). Businesses planning to reduce employment further in the second half of 2020 were typically those who had previously furloughed a relatively large share of the employees. These businesses tended to be those who had seen a large fall in sales in Q2 and who expected a relatively slow recovery.

As well as reducing employment, businesses also reported that they had reduced the hours their staff were working. The average number of hours worked by active employees not on furlough decreased by an average 8% in Q2. Over the coming year, the hours worked by those who remain employed were expected to return close to normal.

Across 2020 Q2, an average of 32% of employees were reported to have been on furlough and working no hours. This explained the majority of the fall in total hours worked in 2020 Q2 (Chart 2). The percentage of employees on furlough was reported to have fallen to 18% in July and 12% in August. It was expected to fall to 8% in September and 4% in 2020 Q4 (and is assumed to be zero in 2021 as the CJRS officially ends on 31 October 2020). The effect of Covid-19 on the average hours of active employees was also expected to be small by 2021.

Chart 2 Workers being placed on furlough made the largest contributions to the reduction in total hours worked in 2020 Q2 (a)

Footnotes

(a) See footnote for Chart 1.

Businesses reported that various measures to control the spread of Covid-19 were expected to increase the cost of running a business over the next year. In August, businesses estimated that their average unit costs would be around 9% higher in 2020 Q3 due to Covid-19 (Chart 1). Over time, that effect was expected to decline gradually. But by Q2 next year, costs were expected to be still 5% higher than they would otherwise have been.

Measures to contain Covid-19 were also reported to have reduced businesses’ capacity to produce goods and services. Social distancing, hand washing, masks, and other measures were expected to reduce the amount of products or services that businesses could offer, were there sufficient demand, by around 10% in 2020 Q3 in the July and August surveys. There were substantial differences between sectors. Businesses in recreational services and accommodation and food reported the largest reductions in production capacity, of around 50% and 30% respectively (Chart 3).

Chart 3 Measures to contain Covid-19 have had the largest impact on capacity in the recreational services and accommodation and food sectors (a)

Footnotes

(a) Data from the July and August DMP surveys. The results are based on the question ‘Do you expect the measures to contain the coronavirus such as social distancing, hand washing, masks, and other measures to reduce the amount of goods or services that your business will be able to produce or offer in 2020 Q3 (July to September)? For example, if a restaurant can only use every other table this would be a 50% reduction.’

Impact of Brexit on UK businesses

Although the pandemic has been the most important issue for most businesses over recent months, uncertainties around the consequences of the UK’s withdrawal from the EU have also remained important for many. In August, 88% of businesses reported that Covid-19 was in their top three current sources of uncertainty and for 54% it was the largest source. Those percentages have fallen back since April but remain very high (Chart 4). Brexit was in the top three sources of uncertainty for 47% of businesses in August (Chart 4). In recent months, the percentage of businesses reporting that Brexit is in their top three sources of uncertainty has remained lower than it was prior to December’s General Election, but it was still a little higher than in the first two years after the Brexit referendum. The proportion who say Brexit is their top source of uncertainty has been much lower since April, most likely reflecting the emergence of Covid-19 as the dominant source of uncertainty.

Chart 4 Brexit remains an important source of uncertainty for nearly half of all businesses (a)

Footnotes

(a) The results are based on the questions: ‘How much has the result of the EU referendum affected the level of uncertainty affecting your business?’; and ‘How important is the spread of coronavirus (Covid-19) as a source of uncertainty for your business?’.

Significant uncertainty also remains among businesses around the timing of when the current transitional arrangements with the EU will come to an end. The transition period is due to finish at the end of December, with the negotiation of a new trade arrangement between the UK and the EU still ongoing. The average probability of the transitional arrangements ending in 2020 with a new trade deal agreed was estimated at 25% in the August survey (Chart 5). There was thought to be a 33% chance of transition ending this year without a new deal agreed. And a 42% chance of the transitional arrangements being extended until at least 2021, lower than the 54% probability attached to this outcome on average in the May survey.

Chart 5 There is uncertainty about when transitional arrangements with the EU will come to an end (a)

Footnotes

(a) The results are based on the question ‘What do you think is the percentage likelihood (probability) of the transition period for UK leaving the EU ending in each of the following years?’.

The August DMP survey asked businesses whether they were prepared for the potential extra requirements for trading with the EU once the current transition period comes to an end. 10% of business that trade with the EU reported that they were fully prepared, 51% ‘as ready as they can be’, 36% said that they were partially prepared and 4% not at all prepared (Chart 6). Compared to when this question was last asked in March, slightly more businesses reported that they were fully prepared and slightly fewer were not at all prepared. 22% of businesses reported that they have no trade with the EU.

Chart 6 Around 60% of businesses that trade with the EU say that they are fully prepared or as ready as they can be for Brexit (a)

Footnotes

(a) The results are based on the question ‘Do you think your business is prepared for the potential extra requirements for trading with the EU once the current transition period comes to an end?’.

In terms of the expected longer-term impact of Brexit, the average probability of Brexit having little or no impact on sales was estimated at about 55% on average between June and August (Chart 7). The average likelihood of Brexit having a negative impact on firms’ revenues was estimated at about 35% with around a 10% chance that Brexit would lead to higher sales. These probabilities have been broadly stable during 2020.

Chart 7 On average, businesses expected Brexit to be more likely to lower sales than to increase them (a)

Footnotes

(a) The results are based on the question ‘How do you expect the eventual Brexit agreement to affect your sales once the UK has left the EU, compared to what would have been the case had the UK remained a member of the EU?’. Data are averages responses from June to August DMP surveys.

Methodology

The DMP consists of the Chief Financial Officers of small, medium and large UK businesses operating in a broad range of industries.

We survey panel members to monitor developments in the UK economy and to track businesses’ views on them. This work complements the intelligence gathered by our Agents.

This note is a summary of surveys conducted with DMP members up to August 2020. The August survey was in the field between 7 and 21 August. In August, there were around 8,000 panel members and we got around 2,800 responses.

Further monthly data from the August survey for a limited number of DMP series was be published on 3 September 2020. Aggregate level data for all survey questions are published on a quarterly basis. Data from the May to July surveys were released on 6 August.

The panel was set up in August 2016 by the Bank of England and with academics from Stanford University and the University of Nottingham. It was designed to be representative of the population of UK businesses. All results are weighted using employment data. See Bloom et al (2017) for more details.

The DMP receives funding from the Economic and Social Research Council.

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