Latest expectations on the impact of Covid-19
UK businesses continued to report a large impact from Covid-19 (Covid). Respondents to the February survey expected sales in 2021 Q1 to be around 22% lower than they would have been in the absence of Covid (on an employment-weighted basis). Employment was expected to be 10% lower and investment 22% lower (Chart 1). The estimated sales impact for 2021 Q1 was 5 percentage points lower than for 2020 Q4. This is likely to have been affected by lockdown measures in place across the UK to restrict the spread of Covid. Covid was also estimated to be affecting employment more negatively in 2021 Q1 than in 2020 Q4, although a small increase in investment was expected. Businesses’ expectations for 2021 Q1 deteriorated substantially between November and February as it became clear that additional restrictions would be required to contain the spread of Covid. At the time of the November survey, businesses had expected Covid to lower sales in 2021 Q1 by 11%, compared to their latest estimate of 22%.
A gradual improvement in sales, employment and investment is expected beyond 2021 Q1 as the impacts of Covid lessen. Respondents in the February survey reported that they expect sales to be 11% lower due to Covid in 2021 Q2, 6% lower in Q3 and be no lower from 2022 onwards (Chart 1). Expectations in February for the shape of the recovery were similar to the January survey, although weaker than earlier surveys (Chart 2). The Government’s announcement for the roadmap out of lockdown in England came on 22 February, just after the survey window had closed.
Chart 1: Businesses continued to expect Covid to have a large impact on their sales, employment and investment over this year
Expected impact of Covid on sales, employment and investment (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/capital expenditure of your business in each of the following periods?’. Data for 2020 Q2 are from the July DMP survey, data for 2020 Q3 are from the October DMP survey, and data for 2020 Q4 are from the January DMP survey. Data for 2021 Q1, 2021 Q2, 2021 Q3 and 2022+ are from the February DMP survey. Data shown for 2020 Q1 are absolute changes in aggregate ONS data for private sector output, business investment and private sector employment between 2019 Q4 and 2020 Q1.
Chart 2: Since November, businesses have become more pessimistic about the impact of Covid on their sales
Expected impact of Covid on sales over time (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 February, respondents provided estimates for 2021 Q1, 2021 Q2, 2021 Q3 and 2022 and beyond. In January and October, respondents provided estimates for 2020 Q4 and 2020 Q3. Latest data available for 2020 Q2 estimates are from the July DMP survey.
Uncertainty remains high, although it did fall back in February. In the February survey, 57% of businesses reported that overall uncertainty was high or very high, down from 67% in January, but still well above its pre-pandemic level. Covid remained a major source of uncertainty for businesses. It was one of the top three sources of uncertainty for 82% of business in the February survey, down by 2 percentage points from the previous month, while it was reported as the largest source of uncertainty for 47% of businesses, down from 50% a month earlier.
As well as sales and employment, hours worked by those who remain employed will also have fallen in 2021 Q1 relative to Q4. The share of employees on full-time furlough (still employed but not required to work any hours) was reported to have been 15% in both January and February (Chart 3). This proportion was twice as high as the average for 2020 Q4. Over the course of 2021 Q2, businesses expect the proportion of furloughed employees to decrease to 5%, although these data were collected prior to the announcement in early March that the Coronavirus Job Retention Scheme would be extended until the end of September 2021.
Chart 3: The proportion of private sector employees on furlough increased in 2021 Q1 while the share of employees working on business on premises declined
Work arrangements of employees (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 (eg ‘on furlough’), (ii) Unable to work (eg due to sickness, self-isolation, childcare etc.), (iii) Continuing to work on business premises, and (iv) Continuing to work from home. Data for March 2021 and 2021 Q2 refer to expected work arrangements.
Longer-term impact of Covid
The percentage of employees working from home was reported to have increased in 2021 Q1, relative to 2020 Q4, with fewer employees working on business premises (Chart 3). That was primarily a response to Government restrictions and guidance. Some changes in working patterns that have occurred over the past year in response to actions to restrict the spread of Covid might persist over the longer term. For the first time, the February DMP survey asked businesses about what proportion of their employees’ time was spent working from home pre-Covid, and what their expectations are for the medium term. Businesses expect a higher level of remote working after the pandemic than before it (Chart 4). Companies reported that in 2019, 14% of employees worked from home at least one day a week. In 2021 Q1, many more employees are working from home – almost 50% according to the February survey. Business expect the proportion of staff working from home at least one day a week to be lower than that in the medium term, but much higher than before the pandemic, at 34%. In 2021 Q1, five days a week at home was by far the most common working pattern among those working from home. In the medium term, working either two or three days per week at home is expected by businesses to be the most common pattern, for those working from home, representing jointly nearly a fifth of the workforce (18%). Overall, businesses expect 20% of hours to be worked remotely post 2022, compared to 43% in 2021 Q1 and 8% in 2019.
Chart 4: Remote working increased and is expected to persist
Working from home as a proportion of workforce and hours worked (a)
- (a) The results are based on the question ‘How often did your full-time employees work from home/how often do you expect them to work from home in the following periods (2019, 2021 Q1 and 2022+)?’. Respondents were able to provide percentages for the following categories: (i) one day per week; (ii) two days per week; (iii) three days per week; (iv) four days per week; (v) five or more days per week; (vi) work from home rarely. Data-points are based on estimates provided by businesses in the February survey.
Another important change to the way businesses operate during the Covid pandemic has been an increasing share of sales being made online. This is also expected to persist over the longer term. In February, businesses were also asked for the first time about the proportion of their sales that were delivered online before the pandemic and about their future expectations for online sales. While online accounted for 46% of total sales in 2019, this has increased substantially during Covid, and accounted for 62% of total sales in 2021 Q1 (Chart 5). Businesses estimate that 53% of sales will be online over the medium term (in 2022 and beyond), 7 percentage points higher than in 2019.
Chart 5: Businesses expect a persistent increase in the share of sales that are online
Proportion of sales that were in-person versus online (a)
- (a) The results are based on the question ‘In each of the following periods, approximately what percentage of your sales were made/do you expect to be made in the following ways: (i) in person; (ii) online; (iii) ordered online and collected physically?’. Data are based on estimates provided by businesses in the February survey.
The UK’s new trading relationship with the EU
Businesses reported uncertainty related to the UK’s new trading relationship with the EU remained elevated in 2021 Q1 despite the announcement of those arrangements on 24 December. The percentage of businesses who reported that Brexit was in their top three sources of uncertainty was 43% in February, unchanged from the previous survey and falling only slightly from 46% in the December survey (Chart 6), which closed prior to the trade deal announcement. The percentage of firms who reported Brexit as their top source of uncertainty was 4% in February, compared to 8% in the December survey. The persistence of Brexit-related uncertainty may be related to uncertainty about the exact implementation of the trade deal and precisely how the new trading arrangements will work.
Chart 6: Uncertainty related to trade arrangements has remained elevated in 2021 Q1
Brexit as a source of uncertainty (a)
- (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?’. Respondents could provide one of the following answers to these questions: (i) Not important, (ii) One of many (iii) Top two or three, and (iv) Largest source of uncertainty.
Business’ expectations of the long-term impact of the UK-EU trading on sales were also broadly unchanged in the February and January surveys, relative to 2020 Q4 surveys (Chart 7). This suggests that the announced arrangements were broadly in line with businesses’ prior expectations. The average probability attached to there being a negative impact on sales was 33%, on average, in the January and February surveys, compared to a 9% chance of a positive impact and a 58% chance of no impact.
Chart 7: Expected longer-term impact of Brexit on sales was little changed after the announcement of new trading arrangements
Longer-term impact of Brexit agreement on sales (a)
- (a) Estimates are derived from the question ‘How do you expect the Brexit agreement to affect your SALES over the longer term, compared to what would have been the case had the UK remained a member of the EU? What is the percentage likelihood that it will: (i) raise sales by 10% or more; (ii) raise by 0%–10%; (iii) no impact; (iv) lower by 0%–10%; (v) lower by more than 10%’. Data are rounded to the nearest integer.
The Decision Maker Panel (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 February 2021. The February survey was in the field between 5 and 19 February. In February, there were 9,005 panel members and we got 3,023 responses.
Further monthly data from the February survey for a limited number of DMP series was published on 4 March 2021. Aggregate level data for all survey questions are published on a quarterly basis. Data from the November to January surveys were released on 4 February. 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.