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UK firms brace for further cuts as lockdown pressure increases

UK mid-market organisations are braced for further cuts and restructuring as increased COVID-19 restrictions place pressure on funding, according to UK data from Grant Thorntons International Business Report (IBR).

UK firms brace for further cuts as lockdown pressure increases

"There will be more difficult decisions to be made by business leaders across the country in the coming days, weeks, and months. "
Dave Munton, Head of UK Markets and Clients at Gra

The IBR, which explores the impact of COVID-19 on mid-market** businesses globally, showed that while 72% of UK mid-sized business can continue to trade using only existing funds, 44% of them will have to cut costs and restructure to do so. This represents a slight increase compared to the first half of 2020 (42%).

The events of this year have created an uncertain and challenging operating environment that has directly damaged revenue, profits, and cash flows for mid-market businesses.  Almost half (49%) of the 275 UK IBR respondents expect to see a decrease in annual business revenue by the end of 2020, with 29% expecting a significant decrease of more than 10%.

Uncertainty, shortage of finance and red tape are constraints to growth

Economic uncertainty remains at the highest levels the IBR has ever recorded, with 69% of respondents saying it is the number one constraint to growth.  Shortage of finance also remains a significant worry for businesses, with 43% identifying it as a top business constraint.  Though government support will have gone some way to alleviate short term strain on finances, the number of businesses citing shortage of finance as a top constraint has only fallen by -2% from the first half of 2020, when this figure was at the highest ever recorded by the IBR. 

With days to go until the planned end to the Brexit transition period, and with even tighter lockdown restrictions likely to spread further across the UK and remain in place for at least the next few weeks, the number of businesses identifying regulation and red tape as a constraint to their growth over the next 12 months increased significantly compared to the first half of the year (45%), up to an IBR record high of 55%.

Investment in the future continues as businesses continue to strengthen resilience

Despite the strong headwinds challenging mid-market businesses they have retained confidence to invest in the future and are preparing to benefit from the recovery of global markets.   New operating models across the globe are favouring a technology and digital led recovery, which is reflected in the investment priorities outlined by the UK mid-market respondents.   Technology remains the number one investment area for mid-sized firms, 44% expect to increase investment for 2021, followed by staff skills (37%). The number of businesses expecting to increase investment in R&D jumped +6 percentage points from the first half of the year, up to 35%.

Commenting on the findings, Dave Munton, Head of UK Markets and Clients at Grant Thornton UK LLP, said:

“The latest IBR data demonstrates just how challenging the operating environment continues to be for UK businesses. There will be more difficult decisions to be made by business leaders across the country in the coming days, weeks, and months. As tier 4 restrictions look likely to spread further across the country, and with the end of the Brexit transition period almost upon us, it is crucial that business leaders build on the resilience and agility they have displayed throughout this year.  Drawing on what they have learnt over the last nine months they are well positioned to act quickly to limit negative impacts and capitalise on opportunities.

“Despite the uncertain environment, with second and third waves of COVID-19 hitting many markets across the world, it’s clear from the findings that a need for digital business models, data management and skills and talent for the future continues to drive investment decisions. It is encouraging to see mid-market businesses very much at the forefront in this regard.

“Though it is unquestionably good news that vaccines are starting to roll out in some markets, it will still be some time before we return to anything approaching normality - and so the uncertain, volatile operating climate will continue.  Many businesses have already made transformational changes to their operating models and investments in the future, and this shows no sign of abating as everyone looks to ensure they are able to compete in a post-COVID world.”


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