How will a recession affect your business?

The Office for National Statistics (ONS) has confirmed that the UK has officially entered recession for the first time in over a decade and suffered the steepest quarterly economic contraction on record between April and June this year, wiping out the previous 17 years of growth in just three months.


If this is your company’s first recession – what should you expect?

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During the second quarter of 2020, the UK economy contracted by just over a fifth – 20.4% – as the Coronavirus response and subsequent lockdown effectively closed the doors for hundreds of thousands of businesses and their staff. 

 

A recession is officially declared when an economy undergoes two consecutive quarters of negative growth and as Q1 saw a 2.2% drop in GDP, this is now the first recession since the 2008/09 financial crisis. 

 

The ONS said: “This is the largest quarterly contraction in the UK economy since Office for National Statistics quarterly records began in 1955 and reflects the ongoing public health restrictions and forms of voluntary social distancing that have been put in place in response to the coronavirus (Covid-19) pandemic. 

 

“In level terms, real GDP was last lower in Q2 2003. Compared with the same quarter a year ago, the UK economy fell by 21.7%.”

 

The Chancellor Rishi Sunak MP acknowledged the gravity of the situation. He said: “Today’s figures confirm that hard times are here. 

 

“Hundreds of thousands of people have already lost their jobs and, sadly, in the coming months many more will. But while there are difficult choices to be made ahead, we will get through this and I can assure people that nobody will be left without hope or opportunity.”

 

Chances are this will be the first recession your business has experienced and things will be tougher during one even without a global pandemic to contend with. 

 

You might have to consider and revise your expected sales and demand levels and how they will impact on your current staffing requirements.  

 

It’s a sad fact that unemployment rises during recessions and analysts are already predicting that this will be a particularly bad one.  

 

The Chartered Institute of Personnel and Development (CIPD) are predicting that one in three businesses is planning to cut roles and that unemployment could treble to three million by the end of this year. 

 

Businesses will have to balance increasing costs against stagnant or falling revenues with increased pressure to service their debts from creditors who will be under increased pressure themselves. 

 

Some sectors such as hospitality and entertainment will be harder hit than others as discretionary spending is reigned in by nervous consumers and a recession can become self-fulfilling if everybody stops spending at once. 

 

Squeezed margins will also make it harder for existing employees to get bonuses or pay rises and it’s harder for university graduates and school leavers to get their feet on the first rungs of the career ladder. 

 

It will be harder to access and extend credit and borrowing channels as lenders withdraw facilities and concentrate on their core products and services instead. 

 

This is particularly tough for entrepreneurs and those looking to start new companies or expand during a recession which leads to further stagnation if there’s no or low new entrants into markets. 

 

A recovery is expected in the latter half of the year and into 2021 but this has to be balanced against the threat of a second wave of Covid-19 and local and national lockdowns to combat this recurrence if it appears.

 

“In the midst of every crisis, lies great opportunity” – Albert Einstein

 

While the next few months will be tough for a lot of businesses, there is also the opportunity to build resilience and growth in a company.

 

It can be the ideal time to make those structural and operational changes that could make the difference between having a business ready to thrive once conditions return to what we consider to be normal and not having a business at all. 

 

Contact us today to arrange a free, initial virtual consultation where we can work with you to understand and highlight key areas where your business can be strengthened and supported. 

 

The quicker you decide to act, the more options you’ll generally have but if you don’t act then these can disappear quicker than you might think.

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