Businesses' confidence lifted as vaccine rollout gets underway

• Sales recovery expected as vaccine rollout boosts business confidence
• Fastest employment fall for a decade
• Budget should provide a bridge to sustainable and resilient economic recovery

Sales will grow this year, a survey of chartered accountants has found, as the coronavirus vaccine rollout suggests the first steps towards a return to normal.

ICAEW’s Business Confidence Monitor™ (BCM) for Q1 2021, published today (THURSDAY 18 FEBRUARY 2021), found that while companies in the UK continued to suffer year-on-year declines in domestic sales, the majority were hopeful of a return to growth in 2021 if the pandemic is contained. [1]

Business confidence was back in positive territory after Q4 2020, the report found, likely boosted by news of vaccine approvals and its subsequent rollout. This rise in confidence was despite the impact of restrictions on trading. [2]

As a result of weaker sales, businesses reported the fastest employment fall for a decade, as they reduced headcounts to save money. And they struggled with the impact of restrictions on trading, which led to a contraction in sales and decline in profits. [3]

Companies said they were going to increase employee numbers in the coming year, reflecting the projected growth in sales and profits. [4]

Exports fared slightly better than domestic sales, partly reflecting the UK’s decline in GDP, which was one of the largest of any advanced economy in 2020. Concerns about possible trade disruptions at the border before the UK left the single market likely contributed to this. [5]

The findings come after last week’s publication of ONS figures, which showed that the UK economy shrank by 9.9% in 2020, more than twice as much as the previous largest annual fall on record.

ICAEW said the Chancellor should focus on jobs and exports in the Budget to create a bridge through to economic recovery in the summer and beyond, with the statement used to support businesses, help exporters, and get people back to work.

Trading conditions remain tough

Even if domestic sales and employment did recover as expected, they would likely remain well below pre-pandemic levels, the report said.

Customer demand remains the most reported growing challenge. Meanwhile, one in three businesses cited late payments as a rising difficulty, a reflection of the pressure placed on company finances – especially cashflows – by the pandemic. [6]

They also expressed concerns over transport problems and expanding into new markets, probably reflecting the impact of travel bans and delays at ports. Problems with regulatory requirements were also increasing challenges for businesses, the report found. [7]

Large proportions of companies also reported operating below capacity and over a fifth reported stocks of finished goods being above normal levels, reflecting the sharp declines in sales in most sectors when the pandemic hit. [8]

Michael Izza, ICAEW Chief Executive, said: 

“The past year has been an unparalleled struggle for business, but the mass rollout of a vaccine and the UK-EU trade deal have provided the foundations for a recovery in 2021.

“Rising confidence among businesses is an encouraging sign of things to come and a predicted growth in employment is good news for people who have lost their jobs over the past year.

“As we look towards spring and summer, we want to see the Chancellor use the upcoming Budget to provide a bridge to sustainable and resilient economic recovery, getting people back to work, helping exporters, and investing in digital technology to make our businesses competitive in the 21st century economy.”

Optimism widespread across most regions

Confidence among businesses grew in most regions and nations of the UK, the report found.

It was highest in the South East, the only region where businesses did not report a contraction in sales over the past 12 months. In Yorkshire and the Humber business confidence remained negative, in contrast to the rest of the UK.

Companies across all regions expected domestic sales to rebound this year. The West Midlands was tipped to bounce back strongest, with the possibility that pent-up demand in the region’s car manufacturing and consumer goods sectors could drive sharp growth in exports and domestic sales in 2021.

Meanwhile, businesses in the transport and storage sector took the greatest hit to their sales year-on-year.

Nevertheless, businesses in all sectors expected their sales to increase in 2021.

Notes to editors:

***The full report is available on request*** 

1. Companies reported a 2.2% fall in domestic sales over the year to Q1 2021, similar to the decline in Q4 2020, but expected a 5.2% growth in 2021 
2. Compared to -19 in Q4 2020, the Business Confidence Index was at +10 
3. At -0.9%, businesses reduced their employment numbers at a faster rate than in any period since Q3 2010. Profits were -3.1% lower in Q1 than a year ago 
4. Companies are planning to increase their employee numbers over the year ahead by 1.4% 
5. Exports growth rose by 0.3% year-on-year and was expected to increase by 3.3% in 2021 
6. 32% of companies reported late payments as a rising challenge, up from 18% in Q1 2020 
7. 23% of companies reported transport problems as a major challenge while expanding into new markets was widely cited by businesses as a growing difficulty  
8. 56% of companies reported operating below capacity 
9. The Business Confidence Monitor (BCM) survey began in 2003.
10. 1,000 Chartered Accountants based in the UK responded to a telephone survey between 19 October 2020 and 15 January 2021. Businesses were categorised in terms of size (number of employees), region and industry sector. Regional classification used was ONS Government Office Regions. 1,000 Chartered Accountants across the UK were interviewed.
11. Business Confidence Index methodology – The Business Confidence Index is calculated from the responses to the following:

“Overall, how would you describe your confidence in the economic prospects facing your business over the next 12 months, compared to the previous 12 months?”

A score was applied to each response as shown below, and an average score calculated:

Using this method, a Confidence Index of +100 would indicate that all survey respondents were much more confident about future prospects, while -100 would indicate that all survey respondents were much less confident about future prospects.