UK businesses expect a gradual recovery in sales, employment and investment during 2021 as Covid-19 (Covid) related restrictions ease and the economy reopens. Respondents to the May survey expected the impact of Covid on sales to fall from -19% in 2021 Q1 to -10% in 2021 Q2 and to further ease to -4% in 2021 Q3 and -2% in 2021 Q4 (Chart 1). Over the medium term (2022 and beyond), the impact on sales is expected to be close to zero. These expectations for sales have been broadly stable over recent months. The impact of Covid on investment is also expected to wane over the coming quarters, and investment will be supported by other factors such as the tax changes announced in the March 2021 Budget as well.footnote 
Recent developments in employment
As well as sales and investment, employment is expected to recover over the rest of 2021. Covid was estimated to have lowered employment by 7% in 2021 Q1 (Chart 1). That effect was expected to decline to -6% in Q2, -4% in 2021 Q3 and -3% in 2021 Q4. Expectations for the shape of the recovery in the May survey were similar to those in the April survey, but slightly more optimistic than earlier surveys.
Chart 1: Businesses expect the impact of Covid on their sales and employment to gradually wane
Expected impact of Covid on sales and employment (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 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, data for 2020 Q4 are from the January DMP survey, and data for 2021 Q1 are from the April DMP survey. Data for 2021 Q2, 2021 Q3, 2021 Q4 and 2022+ are from the May DMP survey. Data shown for 2020 Q1 are percentage changes in aggregate ONS data for private sector output and private sector employment between December 2019 and March 2020.
As well as asking about the impact of Covid on employment, the DMP also asks businesses about their overall employment expectations. Over the year to May 2021, businesses reported that the level of employment has fallen by 4% on average (Chart 2). However, employment is expected to increase over the next year, consistent with a waning impact from Covid. Employment growth expectations for the year ahead have been rising over recent months as more sectors of the economy have reopened, reaching 3.5% in the May survey, up from 2.1% in February (Chart 2).
Chart 2: Employment growth is expected to recover over the next year
Expected and realised overall employment growth (a)
- (a) Results are based on the questions: ‘How many people does your business currently employ (including part-time), and how many people did you employ 12 months ago?’; and ‘Looking ahead, 12 months from now, how many employees would your business have in each of the following scenarios?’. For the last question, respondents provided estimates for the lowest number, a low number, a middle number, a high number, and the highest number of employees. They were then asked to assign a probability to each scenario. A point estimate is constructed by combining the five scenarios with the probabilities attached to them. Employment growth is calculated using Davis, Haltiwanger and Schuh growth rates. This is the change between two periods, divided by the average of those two periods.
Employment growth over the recent past has differed significantly across sectors. Businesses in industries where a high proportion of spending involves face-to-face contact and/or social activity, such as in the accommodation and food and recreational services industries, saw the most severe decline in employment. Employment is estimated to have fallen by 10% and 11% respectively in these two sectors over the year to March to May 2021 (Chart 3). However, businesses in these sectors also anticipate the highest recovery of employment in the next 12 months. Accommodation and food and recreational services are among the sectors that have probably benefited the most from the lifting of lockdown measures, and they expect the strongest growth in employment over the next year. Businesses in the accommodation and food sector expect annual employment growth of 8%, followed by recreational services at 7%.
Chart 3: Employment growth over the past year was lower for sectors with high exposure to face-to-face contact, but stronger employment growth is expected in these sectors over the next year
Realised and expected employment growth by industry (a)
Employees on furlough
As well as reducing their number of employees, businesses have also reduced the amount of labour that they used during the coronavirus pandemic by putting some employees on full or partial furlough (individuals on full furlough are still employed but not required to work any hours), through the Coronavirus Job Retention Scheme (CJRS). In April and May 2020, at its peak, almost 40% of private sector employees were on full furlough (Chart 4). That proportion fell after May 2020 as Covid restrictions were eased, but it began to rise again from October 2020 as restrictions were reimposed. The percentage of employees on full furlough has fallen again since February 2021, from 15% to 6% in May, as restrictions have once again started to be lifted. DMP evidence is very similar to administrative data on the percentage of full-time workers furloughed from the HM Revenue and Customs (HMRC), as well as ONS survey data from BICS. However, contrary to those other sources that focus only on historical furlough data, the DMP also asks businesses about their expectations. The percentage of employees on full furlough is expected to drop further to 4% in June and 2% in 2021 Q3.
Chart 4: The proportion of private sector employees on furlough decreased in 2021 Q2 following the gradual reopening of the economy
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 (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. Employees that have been partially furloughed but are working some hours are recorded as continuing to work. June 2021 and 2021 Q3 data points are based on estimates provided by businesses in the May DMP survey.
Businesses that had previously placed more of their employees on furlough have also reported larger falls in the number of people that they employ. Businesses with a high proportion of furloughed workers in 2021 Q1, defined as businesses with a share of furloughed workers greater than 10% of their employees in that quarter, reported that employment over the year to May 2021 had fallen by 10%, on average. Furlough has been used across all industries, but particularly in sectors most affected by government restrictions, such as accommodation and food and recreational services, which were also the sectors that saw the largest falls in employment over the last year (Chart 3). By comparison, businesses that did not make use of the CJRS in 2021 Q1 reported positive annual employment growth of 1%, on average, in May.
Over the next year, business that have made most use of the furlough scheme expect the strongest recovery in employment. Businesses that had furloughed more than 10% of their employees in 2021 Q1 expected employment to grow by 5% in the next 12 months (Chart 5), higher than for businesses that had made less use of the CJRS.
Chart 5: Employment growth over the past year was lower for firms with a higher share of furloughed workers, but their employment outlook was stronger
Employment growth by use of furlough in 2021 Q1 (a)
Working from home
The share of employees working from home remained elevated in 2021 Q2, and was reported to have been 35% in May 2021 (Chart 6). But that has fallen from 40% at the start of the year. Over the next few months, businesses expect the proportion of employees working remotely to fall further to 24% in 2021 Q3, although the May survey closed prior to the announcements regarding the delay in the removal of further restrictions for England and Scotland, on 14 and 22 June respectively. The share of employees working on premises has been increasing in recent months, reaching 58% of the total workforce in the May survey. That proportion was expected to increase further to 64% in June and 73% in 2021 Q3.
Chart 6: The proportion of private sector employees working on business on premises increased in 2021 Q2 and is expected to rise further
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. June 2021 and 2021 Q3 data points are based on estimates provided by businesses in the May survey.
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 May 2021. The May survey was in the field between 7 and 21 May. In May, we received 3,206 responses.
Further monthly data from the May survey for a limited number of DMP series were published on 3 June 2021. Aggregate level data for all survey questions are published on a quarterly basis. Data from the February to April surveys were also released on 3 June. 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.
For a more detailed analysis of UK business investment expectations using data from the DMP, see Bunn et al (2021), ‘Influences on investment by UK businesses: evidence from the Decision Maker Panel’.