Covid has had a large impact on UK businesses. Although there was a marked improvement in reported sales from around -30% relative to what they would have been in the absence of Covid in 2020 Q2, respondents to the October DMP survey estimated that sales were still 17% lower than they otherwise would have been in 2020 Q3, while employment was 8% lower and investment 24% lower (Chart 1). In the November survey, only a modest further recovery in sales was expected in 2020 Q4, where sales were expected to be 15% lower than they would have been. However, further improvement was expected in the first half of 2021, such that sales were only expected to be around 2% lower by 2021 Q2 (Chart 1). Investment was also expected to recover, but more slowly and by less than sales.
Chart 1: Businesses continued to expect Covid to have a large impact on their sales, employment, hours worked, investment and costs over the next year
Expected impact of Covid on sales, employment, hours worked, investment and costs (a)
- (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, and data for 2020 Q3 are from the October DMP survey. Data for 2020 Q4, 2021 Q1, 2021 Q2 and 2022 and beyond are from the November DMP 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 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, private sector employment and hours worked between 2019 Q4 and 2020 Q1. The impact on unit costs is assumed to be zero in Q1.
While firms’ near-term expectations on the impact of Covid on sales were broadly unchanged in the November survey relative to previous months, expectations for the first half of 2021 were revised up (Chart 2). The largest revision, relative to the October survey, was for 2021 Q2 at 6 percentage points. That may reflect the announcement of positive news about vaccines during the survey window from Pfizer and Moderna, on 9 November and 16 November respectively. The Oxford-AstraZeneca vaccine news came after the survey window had closed.
Chart 2: Businesses revised upwards their expectations on the impact of Covid on sales in 2021 in the November survey
Revisions to expected impact of Covid on sales (a)
- (a) The results are based on the questions: ‘Relative to what would have otherwise happened, what is your best estimate for the impact of the spread of coronavirus (Covid-19) on the sales of your business in the following quarters?’. In November, respondents provided estimates for 2020 Q4, 2021 Q1, 2021 Q2 and 2022 and beyond. In September and October, respondents provided estimates for 2020 Q3, 2020 Q4, 2021 Q1 and 2021 Q2. Latest data available for 2020 Q2 estimates are from the July DMP survey.
There was also an improvement in employment expectations in the November survey, again most notably in the first half of 2021. The impact of Covid on employment was expected to ease from -6% in 2020 Q4 to -3% in 2021 Q2 (Chart 1), the latter represents improvement from -7% in the October survey. As well as positive news on the vaccine, this may also have reflected the extension of the Coronavirus Job Retention Scheme (announced on 30 October). The percentage of employees on furlough (still employed but not required to work any hours) increased in November to 11%, up from 5% in October but still well below the peak of 37% in May (Chart 3). This proportion was expected to fall back to 5% in 2021 Q1. Employees who remained active were also expected to work 4% fewer hours, on average, than they would have done because of Covid in 2020 Q4.
Chart 3: The proportion of private sector employees on furlough increased in November following the extension of the Coronavirus Job Retention Scheme
Proportion of private sector employees on furlough (a)
- (a) The results are based on the question: ‘Approximately what percentage of your employees do you expect to fall into the following categories in each of the following periods?’. Respondents could assign their employees to the following categories: (i) Still employed but not required to work any hours (e.g. ‘on furlough’), (ii) Unable to work (e.g. due to sickness, self-isolation, childcare etc.), (iii) Continuing to work on business premises, and (iv) Continuing to work from home. December 2020 and 2021 Q1 data points are based on estimates provided by businesses in the November survey.
For the first time, the November survey also asked businesses how they expect Covid to affect them over 2022 and beyond. Both sales and employment were expected to largely recover by then, with the impact on sales expected to be +0.25%, and on employment -0.5%. Investment was expected to be 3% lower by 2022 and beyond. This is in contrast to the DMP survey responses in relation to the UK’s decision to leave the EU, where businesses continued to expect a larger reduction in sales over the longer term even if a trade agreement is reached.
Businesses reported that the various measures (social distancing, hand washing, masks and other measures) to control the spread of Covid were expected to increase the cost of running a business over the next year. In November, businesses reported that their average unit costs were around 7% higher in 2020 Q4 due to Covid, and that they expected this impact to persist into next year (Chart 1). By 2021 Q2, costs were expected to still be 5% higher than they would otherwise have been, and they were expected to still be around 2% higher in 2022 and beyond.
Covid continued to have a larger impact on some industries than others, with the industries where a high proportion of consumer spending involves face-to-face contact and/or social activity worst affected. In the November survey, businesses in recreational services, accommodation and food and transport and storage reported the largest expected declines in sales in 2020 Q4, of 49%, 29% and 27% respectively (Chart 4). Businesses in these industries also reported the largest reductions in their capacity to produce goods and services as a consequence of measures to contain Covid.
Chart 4: Measures to contain Covid have had a large impact on sales in 2020 Q4 in the recreational services, accommodation and food and transport and storage sectors
Expected impact of Covid on sales in 2020 Q4, by sector (a)
Overall uncertainty fell back a little but remained high in November (Chart 5). The percentage of businesses reporting that uncertainty was high or very high fell from 75% in October to 67% in November, but remained much higher than at the start of the year, prior to the pandemic. There was also a more marked fall in a measure of uncertainty derived from the distribution of future year-ahead sales growth. Covid remained the dominant source of uncertainty for businesses. In the November survey it was the largest source of uncertainty for around 44% of businesses, and in the top three sources for around 85%, similar to previous months.
Chart 5: Overall uncertainty fell back in November, but remained higher than at the start of the year
Measures of uncertainty (a)
- (a) The overall uncertainty data is based on the question: ‘How would you rate the overall uncertainty facing your business at the moment?’. Respondents could select one of the following options: (i) Very high – very hard to forecast future sales, (ii) High – hard to forecast future sales, (iii) Medium – future sales can be approximately forecasted, (iv) Low – future sales can be accurately forecasted, (v) Very low – future sales can be very accurately forecasted. The data series plots the percentage of respondents that responded either ‘Very high’ or ‘High’. The sales subjective uncertainty data are based on the question: ‘Looking a year ahead from the second quarter of 2020 to the second quarter of 2021, by what % amount do you expect your sales revenue to have changed in each of the following scenarios? (lowest, low, middle, high and highest)’ and respondents were asked to assign a probability to each scenario. The data series plots the mean standard deviation of expected year-ahead sales growth (per cent) between these scenarios.
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 November 2020. The November survey was in the field between 6 and 20 November. In November, there were around 8,700 panel members and we got around 2,964 responses.
Further monthly data from the November survey for a limited number of DMP series were published on 3 December 2020. Aggregate level data for all survey questions are published on a quarterly basis. Data from the August to October surveys were released on 5 November. More information can also be found on the DMP website.
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.