The lasting impact of COVID-19 on the British economy, how this will impact SMEs

Unsurprisingly, the COVID-19 pandemic will likely leave lasting scars on the British economy. The economic downturn induced by restrictions and changes to consumer habits may impact SMEs even after the pandemic. However, there are still ways for British businesses to brace themselves from the impact and even turn the new challenges into opportunities.

80% of British SMEs Report Loss of Revenue

Andy Haldane, the Bank of England’s Chief Economist, recently stated that debt, unemployment, mental health problems, and missed education would be some of the pandemic's lasting effects. While developments in making vaccines widely available have helped boost hope over speeding up economic recovery, Haldane believes that some of the impacts may not be temporary.

Back in early 2020, the country’s economy initially shrank by around a quarter when the pandemic first hit the UK. However, recent figures suggest that roughly two-thirds of this economic loss has been recovered as restrictions have eased, giving hope to many that this recovery will continue.

While there is positivity surrounding the country’s economic bounce-back, SMEs are still at risk. This is detrimental for the UK since SMEs account for around half of the total revenue generated by British businesses and provide employment for around 44% of the labor force. A recent survey revealed that 80% of British SMEs reported their earnings declining since the pandemic, whereas the same percentage had previously reported stability or growth. 

Many British companies have seen a reduction in sales, although some industries have been hit worse than others. This drop in revenue has made it difficult for them to manage their cash flow and pay outgoings like rent, insurance, manufacturing, and shipping. They were also forced to handle disruptions to their supply chains and had to dedicate more time and resources to ensure they can meet customer demands than they did before. 

Offsetting the Impact of COVID-19

Fortunately, there are certain strategies SMEs can take to offset the harmful impacts. Many are finding that supporting employees working from home has allowed them to save on rent and other overhead expenses. They have also reduced working hours to only necessary hours, lessening the money paid out in wages. These are short-term strategies for helping companies free up cash and survive.

Long-term methods include shifting focus from in-store sales to online, with online shopping becoming increasingly popular. Additionally, businesses can capitalize on adapting to changes in consumer shopping habits. For example, products like cleaning products, vitamins and supplements, and coffee have all seen surges in purchases, whereas sales for cosmetics and sun care products have dropped.

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