Choosing the right VAT scheme is an important step for small business owners and can have a considerable...
Today we're going to look at how the coronavirus pandemic will affect the economy in the UK. The unprecedented situation could have serious consequences for your business.
Coronavirus has taken a deadly toll on the world, but how will it affect the economy? In today's article we'll give you an overview of the effects. You may also like the following articles:
1. Government Borrowing
Chancellor Rishi Sunak announced an extremely generous raft of measures to help employees, businesses and the self-employed cope with the lockdown:
- The Self-Employment Income Support Scheme
- The Furlough Scheme
- The Coronavirus Business Interruption Loan Scheme
Unfortunately, these all need to be paid for! The Office for Budget Responsibility recently updated its prediction for public sector net borrowing to £298b. This represents a staggering 95.8% of GDP.
Who knows what the eventual consequences of this borrowing will be? We have to assume tax rises in the coming year. Increased taxes can hurt your business directly (you have to pay more tax), They can also mean that consumers have less disposable income. This means less spending on your goods or services.
2. National & International Trade
Air travel is the sector most affected by the lockdown. Heathrow’s traffic fell by 97% in April compared with the same month last year. Several airlines have started massive job cuts (see below). And the recent 14-day quarantine will make things even harder.
As a consequence, global trade will fall by around a quarter this summer. If your business depends on international shipping or flight, times will be very hard. Even business based locally will struggle. Disruptions to the supply chain filter down to even the smallest businesses.
Some investors are bullish this summer. If the economy does show the "V-shaped recovery", there could be a huge autumn of spending. Keep an eye on the government's approach to the lockdown.
3. Personal Finances
The coronavirus furlough scheme has been keeping millions of Brits in work. However, household finances are in trouble. Many people have seen pay freezes or cuts. Job security is down. And UK consumer confidence is the lowest it has been since 2008.
The IHS Markit Households Finance Index report has lots of really interesting statistics. The takeaway: UK consumers are feeling poorer, more frightened and less confident.
Think how this will affect your business. Perhaps now would be a good time to:
- Cut costs
- Concentrate only on high margin products
- Be conservative in launching new services or product lines
- Pivot towards money-saving offerings
The danger with the furlough scheme is that it just postpones inevitable job losses. This means the country's financial well being could be even gloomier in the autumn when the scheme is wound up.
If you are concerned that your business has been affected by coronavirus, please get in touch. We have been supporting all our clients throughout this difficult time. We are very much open and here for all your accounting and business support needs.