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Post-COVID priorities: preparing for a ‘no-vaccine recovery’

17 September: Businesses need to think carefully about what products and services are needed in a post-COVID world, develop in-built resilience and move from an operational mindset to making more tactical and strategic decisions for the future, according to Deloitte UK’s Chief Executive.

COVID has presented business with the most significant and challenging environment in living memory, but we have to look towards a reshaped economy, Deloitte UK CEO Richard Houston has urged.

Houston’s call to action comes amid stark warnings that it will take until 2022 for the UK economy to bounce back to pre-COVID levels of growth following a 20% contraction in the second quarter of this year, assuming no second national lockdown occurs.

Broadcast this week, Deloitte’s annual 'Back-to-School' economics webinar painted a largely bleak picture for business outlook, with a ‘no-vaccine recovery’ leading to rising redundancies, widespread insolvencies and most businesses operating with subpar revenues for some time.

A strong rebound in housing activity since lockdown restrictions were eased is cause for some optimism, and the Purchasing Managers Index (PMI) – widely regarded as one of the most comprehensive indicators of economic activity – signalled a sharp bounce back in Q3, prompting Deloitte to upwardly revise its GDP growth forecasts.

Significant headwinds ahead

But despite Deloitte’s predictions that the UK economy will grow by about 15% in Q3, the economic rebound will not be enough to offset the catastrophic 20% Q2 contraction - the sharpest ever fall on record. “The economy faces some pretty significant headwinds,” Deloitte UK Chief Economist Ian Stewart warned. 

In particular, the risk of a further spike in COVID-19 cases, the withdrawal of furlough support and uncertainty over Brexit loom large, the Big Four firm warns. Widespread business uncertainty has led to companies running much higher levels of cash, non-financial dividend payments are slowing, and UK corporate profits are starting to roll over, Stewart added. “We’re seeing relatively high levels of debt; companies are being cautious, and indicators of stress are picking up.”

UK banks’ expectations of corporate defaults on corporate bonds have increased. Meanwhile, UK job vacancies have dropped through the floor and unemployment levels are expected to rise steeply once the furlough scheme comes to an end in October. Already, around 695,000 UK workers have lost their jobs since the coronavirus struck in March. In total, some 9.3 million people have been furloughed under the government’s Coronavirus Job Retention Scheme, according to figures from the Treasury, and there are currently three million UK employees on furlough.

Houston said the key priorities for business needed to be driving revenue and growth, transforming operations to adapt to the changing environment and grasping the opportunity to reimagine business models. He said businesses needed to think carefully about what products and services we want and need in a post-COVID world and what that means for business structures and skills.

Houston flagged up the importance of business resilience, in particular the need for business to understand revenue concentration and supply chain risk. He said the pandemic was also prompting huge debate about the future of work, with the widespread uptake of remote working raising questions about its impact on creativity, collaboration and productivity.

“COVID has presented business with the most significant and challenging situation but we have to look towards a reshaped economy,” Houston said. Businesses needed to move on from operation decisions to more tactical and strategic decisions for the future, he urged.

Meanwhile, against a backdrop of “wartime levels” of government borrowing, Stewart said debates about how that would be repaid are starting to emerge, although he speculated that tax hikes remained some way off. “The Budget will likely signpost future tax rises, but any firm policies and tax changes are unlikely to be implemented in the near future,” Stewart said. 

Read the ICAEW’s UK Economic Outlook report.