Survival fears for almost half UK companies

Almost half of all UK businesses face a struggle for survival when lockdown ends because they don’t have enough cash reserves to last them six months.

Despite the massive injections of cash the government has poured into businesses across the land through a variety of support schemes the gear is that when that support is eventually withdrawn many companies will not survive the economic slump that follows.

Survey

The Office for National Statistics (ONS) conducted a survey of 5,000 companies nationwide and found that 44% had enough cash reserves to last them less than six months. The figure rose to 58% among companies which have been forced to cease trading because of the virus pandemic.

Almost 1 in 10 of the businesses forced to suspend trading said they had no cash reserves at all.

Anxiety

Anxiety is now growing among experts that the eventual withdrawal of government support will put many firms in perilous financial circumstances.

Currently a quarter of the workforce are on furlough and relying on the governments Job Retention Scheme finance for 80% of their wages.

Large firms have been access to loans in the millions of pounds and even the self-employed now have the lifeline of a one off government grant covering 80% of their average profit.

Only temporary

But all of these are only temporary measures and though the furlough scheme has been extended to the end of October they will all eventually come to an end. Similarly, employers will have to start paying back the money they have borrowed from the government – with interest.

The business rate holiday that nearly a third of all companies have taken advantage of will be over and the bill needing to be paid. Another debt in waiting are the deferred VAT payments that 60% of firms have taken up.

Pandemic v Brexit

A report by the Bank Of England has said that the pandemic had overtaken Brexit as the main source of concern over our economic health.

ON a personal level surveys are suggesting that households are cutting back on non-essential spending and saving a greater proportion of their income.

Expected weaker demand in the economy will deliver a boost to families because it will ease the pressure on prices.

Rate cuts

The Bank Of England has tried to stimulate the economy with two rate cuts, the latest setting base rate at the record low of 0.1%, but households have not been spurred into spending and o erall consumer confidence seems week.

Chief economist Andy Haldane revealed that the Bank is even considering the unusual step of going to negative interest rates and expanding its asset purchase plan, though neither tactic is imminent.

Greater immediacy

He said: “It’s something we’ll need to look at — are looking at — with somewhat greater immediacy.

You mention negative rates, but there are other options beyond that, or alongside that, that we’re looking at as well.

“I don’t want to imply we’re poised on any of those but we have over a number of years been reviewing all of our options for more, if more is needed.”