What is the Knock on Effect of Lockdown on UK Businesses?

In January 2021 the UK entered its third national lockdown due to the COVID-19 pandemic which has now been impacting daily life and businesses across the UK since March 2020.

Amidst restrictions, the past year has been challenging and has badly impacted thousands of businesses across the country.

Chancellor Rishi Sunak has now promised a further £4.6 billion in financial support to help struggling UK businesses. However, with millions of workers furloughed, redundancies at an all-time high and consumer spending down. Many question whether this will be enough to save businesses who have struggled for the past year.

Many business owners are, understandably, worried about the impacts of lockdown and what the future holds.

To help, in this guide, Clarke Bell looks at the knock-on effects of lockdown on UK businesses and the economy.

How has COVID impacted in the economy?

In response to the COVID-19 pandemic, since March 2020 the government has introduced several UK lockdowns to curb the spread of the virus. This has had a direct knock-on effect on many aspects of the economy and on thousands of businesses. Many have been forced to close or significantly reduce trading and have faced a challenging economic climate.

In fact, it is predicted that the UK will be one of the last high-income economies to get back to its pre-pandemic size in light of rising unemployment, increasing government debts, low levels of business investment coupled with the impact of Brexit.

At the end of 2020, the UK entered into a double-dip recession following the effects of the first and second national lockdowns.

What’s more, the Office for National Statistics reported that in Q3 of 2020, GDP was 8.6% lower than in Q3 of 2019.

However, as the UK’s COVID-19 vaccination programme is now in full swing, and the Prime Minister has announced a roadmap out of lockdown, the future is hopefully looking brighter for many businesses as we progress through 2021.

Which industries have been badly impacted?

Sectors such as hospitality, including pubs, cafes, restaurants and hotels have been amongst the worst impacted by the pandemic. In fact, these service providers shrank by 90% in April and May 2020.

Similarly, as people are not going out or socialising as much, retail sales of clothing and footwear have also fallen, with rates remaining below February 2020 levels.

Entertainment providers such as cinemas and theatres have also been badly impacted, with trade down to just 10% of what it was before the pandemic. Even when cinemas were allowed to temporarily re-open in September 2020, due to social distancing rules their turnover was still down by 58%.

However, it isn’t all doom and gloom. Industries where staff can work from home saw little change compared to pre-pandemic times.

Other businesses have grown despite the pandemic. For example, as non-essential shops have been forced to close, online shopping has seen a big boost. In fact online purchases stood at 28.5% of all sales in October 2020 compared to 20.1% in February 2020.

What kinds of businesses have been impacted? 

Smaller businesses have been more likely to have temporarily closed due to the pandemic than larger businesses.

Around 17% of micro-businesses, those with 10 workers or less, were temporarily closed as of October 2020. This is compared to just 6% of bigger businesses with 250 employees or more.

If your company has been badly impacted by the knock-on effect of the pandemic and recovery does not seem viable, it might be time to consider liquidation.

What is liquidation?

Whether your business is small or large, if it has suffered financially and no longer has a sustainable future, liquidation might be the best path to take.

There are several types of liquidation, including:

Creditors’ Voluntary Liquidation (CVL)

This is a completely voluntary form of liquidation initiated by the company directors and shareholders.

A CVL typically occurs when a company can no longer afford to pay their bills or debts. This is a way for the director to take control and close the company in a way that will ensure all assets and liabilities are dealt with correctly, whilst ensuring all creditors are paid back what they are owed.

A licensed Insolvency Practitioner must be appointed to carry out and oversee the CVL.

Compulsory Liquidation

Compulsory liquidation is when a company is forced to close by creditors who are owed money. This is the most serious form of liquidation which can have negative effects on the company directors.

Take the next steps with Clarke Bell

If you think it is time to consider liquidating your company, Clarke Bell are here to help you.

With over 28 years’ worth of experience, our team of professionals will work closely with you to offer only the best insolvency advice.

Why not get in touch today to see how we can help?