70,000 Yorkshire SMEs fear closure from second UK lockdown

Many faced an overnight fall in demand for their products and services, significant restrictions to their operations and severe disruptions to supply chains. Even with a partial return to normality throughout the summer, and some positive movement in GDP, conditions remain very challenging, especially with more restrictions being imposed to try and stop COVID-19 spreading in the winter months.

As a bank dedicated to supporting SMEs, we wanted to gain a deeper understanding of the issues facing businesses and commissioned the Virgin Money Business Pulse, which is a comprehensive report into the performance of the UK’s SMEs and the environment in which they operate.

The results make for sober reading, but they are unsurprising given the extraordinary disruption of the last six months. The report dropped to its lowest ever level of 32.9 in the second quarter of 2020, which was driven by record-low scores in the revenue, GDP and capacity indicators, although gains were made in the business costs and lending indicators. Rock bottom commodity prices and falling wages have provided some relief to SMEs in the form of declining business costs. Similarly, government-backed loans as part of the fiscal response to the pandemic, led to a record jump in SMEs’ borrowing, which has improved the lending indicator.

As part of the research, we also surveyed more than 500 companies, spanning a range of sectors and regions, with many understandably worried about the future. Most are unsure how long it will take to return to pre-COVID 19 trading levels and are fearful about the impact of further lockdowns or restrictions.

Almost 55,000 SMEs across Yorkshire and The Humber say it’s likely their business will close permanently in the next 12 months as a result of the coronavirus crisis, with that figure rising to over 70,000 in the event of a second national lockdown being introduced.

Across the UK, the survey revealed that almost one million SMEs fear they could close if there was a second lockdown. Two-thirds (66%) of SMEs said their profits were lower in April because of COVID-19 disruptions, including 21% whose profits took a hit of more than 50%.

There will also be a key turning point for SMEs at the end of this month with the Government’s Coronavirus Job Retention Scheme closing, and the less generous Job Support Scheme replacing it. Businesses have shared their concerns about their ability to retain furloughed staff – with 42% of SMEs (excluding sole traders) expecting their workforce to be smaller in December than it was in September.

However, there are some positives from the research, with SMEs performing better in sectors which have seen heightened demand as a result of the virus – such as food stores and producers of PPE.

Interestingly, the COVID-19 crisis also has the potential to be an inflection point for the UK’s regional rebalancing agenda. The establishment of new working patterns and reduced levels of activity in cities could provide an opportunity to work towards closing the regional divide. The Regional Rebalancing Tracker section of the Virgin Money Business Pulse highlights the scale of the task at hand, with London and the South East having pulled further away from the rest of the UK over the last six years.

As we head into the autumn and winter months, the next six months will be critical for many businesses. The future is always hard to predict, perhaps more so now than ever, but we will continue to focus on how we can support the region’s SMEs through both our Yorkshire Bank and Virgin Money brands as they navigate the economic recovery.