The Office for National Statistics (ONS) had today reported that the UK economy shrank by 20.4% in April 2020, the largest-ever monthly contraction on record.
These figures are a cause for real concern and come on the back of yesterday’s announcement by the Organisation for Economic Co-operation and Development (OECD) that the UK economy may be the hardest-hit by Covid-19 among the major economies.
The figures must firstly be taken in context. Virtually all business ground to halt in April and marked the peak of the pandemic.
With many businesses reopening in the coming weeks, it is results from the next few months’ trading that will be crucial to understanding the true nature of the UK’s economic position.
Economists will be looking at how well businesses can navigate through the uncharted waters of a post-lockdown world.
The government’s reaction to calls to scrap its quarantine system for arrivals into the UK and the two-metre social distancing rules will also be crucial.
Many questions remain as to the viability of many businesses, particularly in the retail and leisure sectors, and as to whether consumer habits will have changed forever and will have a huge impact on footfall and turnover.
Chancellor Rishi Sunak’s quick response to the crisis was praised, with the introduction of numerous schemes staving off the threat of mass insolvencies.
However, he is under growing pressure to follow up with a stimulus package to pull the UK away from deep recession. Many people in the accountancy sector believe the measures to date have amounted to nothing more than sticking plaster.
The economic figures may not be as bad again, as there was literally no trade in April. Yet with no vaccine on the horizon, and no indication that the government will scrap the two-metre social distancing rule, it may not be long before we see an increase in insolvencies.
We have found that most of our work during the crisis has been coming from companies that were already struggling prior to Covid-19, for whom the pandemic has been a tipping point.
However, we are starting to seen an increase in enquiries from businesses directly affected by the crisis which are examining their options ahead of a planned reopening in the coming weeks.
Companies concerned about the viability of their business should seek advice from an insolvency practitioner as a matter of priority.